SINGAPORE'S core inflation rose in March, staying positive for the second straight month after more than a year in negative territory, Department of Statistics consumer price index (CPI) figures showed on Friday.

Core inflation, which strips out the costs of accommodation and private road transport, was 0.5 per cent in March versus 0.2 per cent in February. Headline inflation was 1.3 per cent, up from 0.7 per cent.

Both inflation measures came in just over economists' expectations of 0.4 per cent for core inflation and 1.2 per cent for headline inflation.

"Inflation is picking up partly due to the lower base last year, but also on the back of rising energy and petrol prices, surging COE (certificate of entitlement) premiums and foreign worker shortages," said Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye.

In a joint statement, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) kept to their official forecast ranges. The outlook provided was largely similar to the MAS's half-yearly monetary policy statement earlier in April.

The increase in March was driven partially by the cost of services. Declines in the costs of retail and other goods, as well as electricity and gas, slowed. (see Amendment note)

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Headline inflation was also boosted by higher private transport inflation, at 7.2 per cent, up from 4.2 per cent in February, due to a larger increase in car prices and an upward bounce in petrol costs.

Services inflation rose to 1.2 per cent, on the back of steeper rises in point-to-point transport services fees and health insurance costs.

The cost of retail and other goods fell at a slower pace, with inflation at -1.5 per cent compared to -1.9 per cent in February. Electricity and gas inflation was -9.7 per cent, compared to February's -9.8 per cent.

The pace of accommodation inflation remained unchanged at 0.5 per cent.

Food inflation was the only category that bucked the trend, slowing to 1.4 per cent in March from 1.6 per cent previously.

A majority of the Singstat expenditure categories – distinct from the MAS and MTI categories – saw positive inflation in March. The exceptions were clothing and footwear (-4.8 per cent), housing and utilities (-0.2 per cent), and miscellaneous goods and services (-1.1 per cent).

Rising core inflation since February may have an impact on the day-to-day spending by most households, said UOB economist Barnabas Gan. But he expects inflation risks to stay benign for the rest of the year, with business costs pressures remaining contained amid slow wage growth, "given the continued slack in Singapore’s labour market".

The MAS and MTI maintained their full-year forecast ranges of zero to 1 per cent for core inflation, and 0.5 to 1.5 per cent for headline inflation. The latter forecast was raised in the April monetary policy statement.

As in April, MAS and MTI expect external inflation to continue rising in the near term amid the recovery in global oil prices and a turnaround in produce price inflation in some major economies.

"While there are some upside risks, the upward pressure on global inflation should ease in the latter part of 2021," they said, with oil price rises capped by surplus production capacity and import price pressures held in check by lingering negative output gaps in some major trading partners.

At home, "price pressures are likely to gradually pick up and broaden across the CPI basket as labour market conditions improve and private consumption recovers".

Both headline and core inflation are forecast to rise in the months ahead - reflecting both low base effects from 2020 and stronger domestic demand - but inflation is unlikely to accelerate in the second half of the year as business cost pressures are contained.

"Wage growth is expected to be muted as the slack in the labour market will take time to be fully absorbed while commercial rents are projected to stay low," they said.

Following the release, Barclays raised its forecast for core inflation to 0.7 per cent from 0.6 per cent previously, and for headline inflation to 1.6 per cent from 1.1 per cent previously, the latter due to a faster-than-expected rise in COE quota premiums.

"That said, as we have previously highlighted, we doubt a breach in MAS headline inflation forecast will materially affect FX policy, as policymakers tend to be more focused on core inflation," said Barclays economist Brian Tan, who still expects policy settings to stay unchanged in the next review in October.

The MAS is likely to remain cautious about a premature tightening, given that any recovery could be quickly derailed if Covid-19 infections surge again, he added.

But the Maybank analysts see a "non-negligible probability" of about 30 per cent that the MAS may tighten policy then if inflation overshoots.

Amendment note: An earlier version of the article said the increase "in February" was driven partially by the cost of services. This should have referred to the increase in March. The article has been amended accordingly.