Core CPI rose at its fastest pace since August 2014 to 1.9% y/y in July, driven by higher electricity and gas costs which jumped by 12.7% y/y. Meanwhile, headline CPI gained 0.6% y/y in July, the highest in 7 months. We expect potential upwards pressure on inflation becoming evident. Potential inflationary pressure will be driven by imported and domestic inflation due to firmer global oil and commodity prices besides a faster pace of wage growth and a pickup in domestic demand. But the upside on the CPI will be weighed by retail rents which remained subdued, and limited pricing power by companies due to strong market competition. We reiterate our 2018 headline CPI forecast around 0.8% y/y and core inflation at 1.8% y/y. Room for the Monetary Authority of Singapore (MAS) to gradually tighten its current monetary policy in October policy meeting remains.

• Core Consumer Price Index (CPI) rose at its fastest pace since August 2014 when it registered a gain of 2.0% y/y. In July, core CPI gained by 1.9% y/y from 1.7% y/y in June due to higher electricity and gas costs. Electricity and gas costs jumped by 12.7% y/y in July from 3.7% y/y in June.

• Meanwhile, headline CPI gained 0.6% y/y in July, the highest in 7 months and this fell in line with June's increase. Food inflation came in at 1.5% y/y in July, unchanged from the previous month, while the services inflation moderated to 1.5% y/y in July from 1.7% y/y in June. Private road transport costs were lower 0.2% y/y reversing the 0.4%y/y gain in June.

• Potential upwards pressure on inflation is becoming evident. We expect the increase to be mild from firmer global oil and food commodity prices that should raise imported inflation. Besides, domestic inflation should rise on a faster pace of wage growth and a pickup in domestic demand.

• However, the upside on CPI will be weighed by retail rents which remained subdued, added with limited pricing power by companies due to strong market competition. The ongoing trade concerns, if these materialize into a full-blown trade war, would drag global GDP and hence mute potential inflationary pressure.

• In the meantime, we reiterate our 2018 headline CPI around 0.8% y/y and core inflation at 1.8% y/y. Room for the MAS to gradually tighten its current monetary policy in its next policy meeting in October remains.

Source: AmInvest Research - 24 Aug 2018