In March, Singapore’s inflation decelerated for 17th straight month. Inflation slowed from February’s 0.8% to -1%, primarily because of sharp fall in private road transport costs. Private transport costs fell mainly due to lower Certificate of Entitlement premiums and major decline in petrol prices. The MAS’ core inflation, stripping accommodation and private road transport costs, accelerated 0.6% y/y with the help of higher food prices. Core inflation was 0.5% in February.
The change to dovish stance on inflation justifies the opinion that risk was always for additional deceleration in the near term inflation, noted ANZ. Any acceleration in 2016 is not expected to move towards the levels of long-term average, particularly if growth continues to be in sub-trend, added ANZ. Singapore’s central bank now expects core inflation to be in the lower half of the 0.5-1.5% range, barring a surge in global oil prices.
Meanwhile, the tightness in the labor market is likely to diminish slightly with wage growth expected to decelerate further in 2016. Furthermore, the MAS forecasts core inflation in the medium term to average slightly lower than 2%, as compared with their earlier anticipation of an increase towards the historical average.
Lower oil prices and a dovish US Fed are likely to give a leeway for easing of policy if needed, particularly amidst sub-par growth and weak core inflation, according to ANZ. The shift in central bank’s policy to neutral during its meeting in April does not signify the ending of current easing cycle that started in January 2015.
“The next easing move will involve a re-centring lower of the S$NEER policy band, if downside risks to Singapore’s growth and inflation escalate”, said ANZ.
The material has been provided by InstaForex Company – www.instaforex.com