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Quick takes: Analysts see gradual rise in Singapore inflation this year

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SINGAPORE'S headline inflation stood at 0.2 per cent on year in December 2016, from 0.0 per cent in November - marking the first positive reading in more than two years as a result of higher private road transport costs.

SINGAPORE'S headline inflation stood at 0.2 per cent on year in December 2016, from 0.0 per cent in November - marking the first positive reading in more than two years as a result of higher private road transport costs.

Here are some economists' comments:

Weiwen Ng, ANZ Research:

"Headline inflation turned positive in December 2016 on higher private transport costs, ending the long spell of falling prices since started November 2014.

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Market voices on:

"Looking ahead, we expect headline consumer price index (CPI) inflation to gradually pick up over 2017, mainly on the back of higher private transport costs.

"Nonetheless, a return to positive headline CPI inflation disguises underlying softness, given the absence of more generalised demand-induced pressures. Domestic cost pressures will be muted, owing to slack in the economy. The subdued labour market will also put a lid on wage growth. Furthermore, a moderation in commercial rentals will exert a strong disinflationary drag.

"With activity set to stay subdued, core inflation pressures will be held firmly in check. We forecast core inflation to only post modest increases from 0.9 per cent in 2016 to 1.3 per cent into 2017, at the lower half of MAS's expectation of 1-2 per cent."

Francis Tan, UOB:

"As expected in our previous inflation report that we may start experiencing inflation after two full years of deflation.

"With producer prices in China clocking in four consecutive months of on-year increases over the past 4 months (since September 2016) after 55 months of decline, we can only expect the retail goods inflation to come up higher in the months ahead as retailers pass on the costs to consumers.

"We concur that higher global oil prices as well as other commodity prices will translate into higher inflationary pressures for this year.

"Higher consumer prices in the midst of an economic slowdown will not be good, as the real purchasing power of consumers will be eroded when nominal income remains stagnated due to poor economic prospects. However, it is currently too early to make such a conclusion.

"...we are hopeful that the accompanying inflation could well be classified as a "demand-pulled" type of inflation (as higher demand drives prices higher), rather than a "cost-pushed" type of inflation that usually results from a supply shock (such as an oil shortage). The outcome, when such a condition persists, could be the economy on a "reflationary" cycle.

"We maintain our 2017 core inflation forecast of 1.3 per cent, while headline inflation should average 0.5 per cent in 2017. We currently view that the MAS will adopt a wait-and-see approach and will maintain the current zero appreciation SGD NEER policy in their April 2017 meeting. However, should core inflation surprise on the upside, it may add some pressure for the central bank to introduce some appreciation to the SGD NEER slope, especially since the US Federal Reserve looks more hawkish-than-ever for 2017 in their latest FOMC meeting.

"We maintain our USD/SGD forecast of 1.46/USD by middle of 2017 and 1.48/USD by end 2017..."

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