After posting a 0.6% y/y gain in July, which is the fastest gain in over two years, the headline inflation grew 0.4% y/y in August, while core inflation rose at its slowest pace since April by 1.4% y/y. The latest inflation data suggests weak domestic demand due to the softness in the labour market. We maintain our view that the Monetary Authority of Singapore (MAS) will continue with its current neutral exchange rate policy stance in the October meeting and for an extended period.

• After posting a 0.6% y/y gain in July, which is the fastest gain in over two years, the headline inflation grew 0.4% y/y in August. On a m/m basis, it turned around to grow by 0.3% y/y after two consecutive months of decline. Meanwhile core inflation, which excludes accommodation and private road transport costs, rose at its slowest pace since April by 1.4% y/y.

• The latest inflation data suggests weak domestic demand due to the softness in the labour market. We found domestic demand less stocks fell by 2.0% y/y in 2Q2017 despite a GDP growth of 2.9% y/y. It shows that strong exports fail to impact domestic demand positively.

• We maintain our view that the Monetary Authority of Singapore (MAS) will continue with its current neutral exchange rate policy stance. We see the neutral policy staying for an extended period.

Source: AmInvest Research - 26 Sept 2017