January headline and core inflation eased to 0.4% y/y and 1.7% y/y from 0.5% and 1.9% y/y respectively due to slower gains in electricity & gas prices which more than offset the gains from services prices. With the outlook on global oil prices envisaged to be soft, it allowed the MAS to revise downwards its 2019 inflation to between 0.5% and 1.5% from 1.0%–2.0% previously while maintaining its core inflation target at 1.5%–2.5%.

In our view, the January inflation data failed to show any signs of broad-based easing of price pressures. As such, we feel there are chances for the MAS to potentially tighten its monetary policy during the April policy review. But much will depend on the potential incoming inflation data for the month of February. If it stays below expectations, we then foresee the central bank staying neutral during its upcoming meeting in April.

• Headline inflation in January eased slightly to 0.4% y/y from 0.5% y/y in December 2018 while the core inflation rose slower by 1.7% y/y from 1.9% y/y December. The slower inflation print was due to moderate gains in the prices of electricity & gas prices, up 6.5% y/y from 14.6% y/y in December following a downwards revision in electricity tariffs due to lower oil prices in the previous months based on the Open Electricity Market (OEM) on electricity prices.

• At the same time, prices of private road transport fell 3.4% y/y in January from -3.7% y/y in December, though the rate of drop eased as the pace of reduction in car prices softened. Meanwhile, services inflation rose 1.7% y/y in January from 1.5% y/y in December following an uptick in public transport fares.

• With global crude oil prices expected to be softer, it provides room for inflation to trend on a softer path. Hence, the central bank has downwardly revised its inflation forecast to between 0.5% and 1.5% from 1.0%–2.0% previously. But the central bank maintained its core inflation target at 1.5%–2.5%.

• In our view, the January inflation data failed to show any signs of broad-based easing of price pressures. As such, we feel there are chances for the MAS to potentially tighten its monetary policy during the April policy review. But much will depend on the potential incoming inflation data for the month of February. If it stays below expectations, we then foresee the central bank staying neutral during its upcoming meeting in April.

Source: AmInvest Research - 26 Feb 2019