Worried about inflation? Keep calm and carry on

INFLATION may be rearing its ugly head but there is no reason to panic yet. Bond investors should remain invested and keep a lookout for sell-off opportunities among high yield short duration bonds.

Last week, the US Bureau of Labor Statistics reported that compared to a year ago, US consumer prices have surged 4.2 per cent, marking the largest year-on-year (yoy) increase since September 2008. Prices of consumer goods excluding food and energy items climbed 0.9 per cent month-on-month, the biggest monthly gain since April 1982.

In Singapore, prices of consumer goods and services increased 1.3 per cent yoy in March and this was driven partially by higher private transport costs. For example, Certificate of Entitlement (COE) premiums for category A cars climbed to S$44,589 in March 2021, up from S$31,210 in March 2020. COE premiums have continued to rise to S$49,640 in April and S$48,002 in May. With commodity prices exceeding their pre-Covid highs, there is a strong chance that the headline consumer price index will remain at an elevated level in the upcoming months.