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Quick takes: Higher core inflation in April will not alter monetary policy outlook

Tuesday, May 23, 2017 - 16:22

THE disbursement of the service and conservancy charges (S&CC) rebates in April this year, compared to in May last year, has pushed Singapore's headline inflation in April lower to 0.4 per cent year-on-year.

Meanwhile, the core inflation which strips out the cost of accommodation and private road transport, rose to 1.7 per cent year-on-year in April due to stronger pickup in the cost of electricity and gas on the back of higher global oil prices, latest offical data showed.

Here are some economists' comments:

Nomura economists, Euben Paracuelles and Brian Tan:

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Market voices on:

"On headline inflation, we expect a spike in May due to a base effect from the disbursement of S&CC rebates last year, but this should be transitory and headline inflation should moderate thereafter.

"We forecast headline inflation to average a relatively low 0.5 per cent in 2017 from -0.5 per cent in 2016, though we acknowledge slight upside risks from the recent stability of certificate of entitlement quota premiums for cars and the pick-up in property prices (which we believe risks triggering further policy tightening on the property market)."

ANZ economist, Ng Weiwen:

"The larger than expected rise in core inflation reflects the impact of administrative price increases, as opposed to demand pull pressures. As a result, today's higher than expected core inflation print will not alter the monetary policy outlook. We expect the current neutral policy stance to be maintained for an extended period."

OCBC economist, Selena Ling:

"We tip core inflation to continue to climb and extend beyond 2 per cent year-on-year handle before the year is out, but full-year core inflation is still likely to average 1.6 per cent year-on-year for 2017.

"For the first four months of the year, headline and core inflation rose 0.6 per cent and 1.4 per cent year-on-year respectively, which is well within the official full-year inflation forecasts.

"Given that the MAS-MTI inflation outlook remains unchanged from March, it suggests that the view has not shifted from one of benign look-through in terms of the global commodity prices given the domestic labor market conditioned have slackened and there isn't generalised demand-induced price pressures within the Singapore economy. Barring a sharp resurgence in crude oil prices, we maintain our headline inflation forecast of 1.0 per cent year-on-year for 2017."

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