Singapore bank says core inflation to moderate in Q2-Q3 before rising

Singapore's core inflation may moderate in the second and third quarters and headline inflation could be negative for "some consecutive months", the central bank said on Tuesday. Inflation was expected to return next year as oil prices pick up, it said.
Direct oil-related items are expected to dampen overall inflation by up to 1 percentage point in 2015 after a negligible contribution last year, the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review. "In sum, the sharp correction in global oil prices is expected to further dampen domestic inflation, with possible second-round effects in terms of lower production costs," the MAS said. It added that while the labour market is likely to remain tight, pass-through of costs should remain moderate because of the slow growth environment.
The central bank said headline, all-items inflation could "ease slightly" on a year-on-year basis in the second and third quarters, before edging up in the fourth quarter. "While CPI All-Items inflation could be negative on a year-on-year basis for some consecutive months, this largely reflects falling car prices, housing rentals, and costs of oil-related items such as petrol and electricity tariffs," the MAS said. Singapore's headline CPI has fallen on a year-on-year basis for five straight months since November, as a slide in global oil prices in the second half of 2014 added to disinflationary pressures from falls in housing rents and prices of car permits.
Services costs have moderated due to the impact of enhanced medical subsidies, and core inflation slowed to 1.0 percent year-on-year in March, matching a trough hit in January which was the lowest since March 2010. The MAS said core inflation could moderate to around 0.4 percent year-on-year in the second quarter and third quarter, when the base effects from oil prices are most pronounced, before rising towards the end of the year and into 2016.
"In 2016, inflation is expected to rise as global oil prices pick up and the effects of budgetary measures dissipate," it said. MAS reiterated that core inflation is expected to be 0.5 percent to 1.5 percent for 2015 as a whole and that all-items inflation is expected to be -0.5 percent to 0.5 percent. It said Singapore's economic growth this year is likely to be in the range of 2-4 percent.
Earlier this month, the MAS had surprised markets by holding off from further monetary easing, saying an improving outlook for global growth would underpin the trade-reliant economy. That decision came after the MAS unexpectedly eased its exchange-rate based monetary policy in January in an unscheduled policy announcement, saying the inflation outlook had "shifted significantly" following a plunge in global oil prices.