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Inflation still expected to rise in H2 2015
ALTHOUGH inflation may look benign right now - especially with the Monetary Authority of Singapore (MAS) slashing its inflation forecasts for 2015 - the consumer price index (CPI) is expected to rise in the second half of this year.
Said the central bank on Wednesday: "Going forward, core and headline inflation are expected to ease further, before rising in H2 with some recovery in global oil prices and in view of the base effects associated with the low inflation in Q4 2014."
The MAS said this in its unexpected monetary policy statement, in which it eased its monetary policy stance and significantly lowered its inflation forecasts on lower global oil prices.
Headline inflation is now projected to come in at -0.5 to 0.5 per cent compared to an earlier estimate of 0.5 to 1.5 per cent; core inflation is expected at 0.5 to 1.5 per cent versus a previous forecast of 2 to 3 per cent.
Said CIMB economist Song Seng Wun: "It's not that inflation is no longer a concern - it's just not as worrisome as before. The central bank may have eased monetary policy on Wednesday, but it's still guarding against inflation . . . We still have a moderate slope after all, and not a neutral one."
Explaining its revised inflation outlook beyond the sustained slump in oil prices, the MAS said: "The extent to which businesses will pass on accumulated costs to consumer prices could be somewhat constrained in the near term by the moderate economic growth environment. Car prices and imputed rentals on owner-occupied accommodation will also continue to dampen overall inflationary pressures amid the increase in the supply of COEs (Certificates of Entitlement) and newly completed housing units."
HSBC economist Joseph Incalcaterra also highlighted the possibility of some food inflation in the coming months due to disruptions in regional food supplies.
"Moreover, with the possibility that retailers eventually pass through some costs to consumers as margins erode over time - even if slowly and unevenly - there is a chance that the impact of higher wages is still to materialise," he added.
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