Singapore inflation rises to 0.5% in February
SINGAPORE: Singapore's headline inflation rate rose to 0.5 per cent in February from after flatlining at 0 per cent in January.
There was a stronger pickup in the prices of services and food and a milder decline in the cost of accommodation which, together, more than offset a fall in private road transport inflation, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) on Friday (Mar 23).
The cost of accommodation fell by 3.6 per cent in February, moderating from the 5.3 per cent decline in the month before, as the dampening effect of the disbursement of Service & Conservancy Charges rebates in January dissipated.
Services inflation increased to 1.9 per cent in February from 1.3 per cent in January, with a rise in airfares and holiday expenses.
Food inflation rose to 1.5 per cent in February from 1.1 per cent in the previous month, reflecting a larger increase in the prices of non-cooked food items, and to a lesser extent, the cost of prepared meals, due to the seasonal uptick in food prices at Chinese New Year.
Private road transport inflation slowed to 0.6 per cent in February from 1.6 per cent in January, said the two agencies.
Core inflation - which excludes the costs of accommodation and private road transport rose to 1.7 per cent from 1.4 per cent the previous month. This reflected higher services and food inflation, said MAS and MTI.
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The surprise upside in both headline and core inflation figures could be due to the Chinese New Year effect, said UOB economist Francis Tan.
He added that such seasonal distortions are "common" and may provide skewed inputs for analyses and policymaking. When adjusted for the seasonal effect by taking the average of January and February's data, the headline inflation was 0.2 per cent year-on-year, slower than the 0.5 per cent year-on-year in the fourth quarter of 2017.
Meanwhile core inflation averaged 1.6 per cent year-on-year, edging higher than the 1.4 per cent year-on-year in the fourth quarter of 2017.
Mr Tan said he does not think that core inflation, which rose to a 40-month high in February, will continue to increase.
Nonetheless, "we cannot deny the fact that the current and expected level of core inflation is a notch higher than the 0.7 per cent year-on-year average in the 2015-16 period".
As such, Mr Tan expects the MAS to embark on a policy normalisation path during its upcoming meeting in April. The central bank will guide a “mild appreciation" of 0.5 per cent per annum for the Singapore dollar nominal effective exchange rate (S$NEER) slope, he said.
Agreeing, Maybank Kim Eng economist Chua Hak Bin said high and rising core inflation is likely to prompt the MAS to normalise and shift to a slight appreciation bias at the April meeting.
Rising risks of a trade war between the US and China will not delay the normalisation shift, he added.
"Core inflation will likely continue creeping higher in 2018," he wrote in a note. "Wage pressures will likely translate into higher services inflation, fuelled further by the recent tightening of foreign manpower measures. Anticipated hikes in public transport fares and Changi Airport’s fees will likely push up transport and recreation costs."
Dr Chua expects Singapore's headline and core inflation to average 0.9 per cent and 1.7 per cent, respectively, this year.