Singapore’s Core-inflation Eases to Nine-month Low

Singapore’s headline inflation rate in February rose to 0.5% yoy compared to 0.4% in January, the same rate of increase as in December 2018. Slightly higher inflation was supported by slower decline in transport costs of -1.2% yoy in February (-1.8% in January) as well as housing and utilities of -0.4% yoy in February (-0.5% in January). The smaller decline in transport cost was led by private road transport costs, due to the slightly higher car and petrol prices. Core-inflation, which excludes the costs of accommodation and private road transport, eased for the second consecutive month in February to 1.5% yoy from 1.7% in January, its slowest pace since May 2018, due to the slower rise in services, retail items and electricity and gas.

With slower core-inflation, we believe the Monetary Authority of Singapore (MAS) will likely remain neutral and refrain from making any policy changes at its upcoming half-yearly monetary policy meeting in April. Recall that in the last meeting in October 2018, MAS had tightened its policy for the second consecutive time by increasing the slope of the S$NEER policy band slightly due to its expectations of higher imported inflation, amid the rise in global oil and food prices. Moreover, in MAS’ joint statement with Ministry of Trade and Industry (MTI), it now expects upward inflationary pressure to be capped by lower expected global oil prices in 2019 compared to 2018 as well as greater market competition in several consumer segments.

As a result, MAS’s headline inflation rate projection was maintained at 0.5- 1.5% (0.4% in 2018), respectively while core-inflation forecast range was also unchanged at 1.5-2.5% for 2019 (1.7% in 2018). According to MAS’ quarterly survey of professional forecasters, it also expects slower Singapore’s GDP growth of 2.5%, as compared to 3.3% in 2018, due to the anticipated possible slowdown in China as well as on-going trade tensions. Therefore, against the backdrop of softer growth and tepid inflation, we believe MAS will leave its monetary policy unchanged.

Separately, Singapore’s industrial production index (IPI) turned around and rose by 0.7% yoy in February, following its first contraction since December 2017 in January 2019 of 0.4%. However, excluding biomedical manufacturing, growth om IPI declined for the third consecutive month albeit at a slower pace of -1.6% yoy in February from -2.8% in January. By clusters, higher growth of IPI was driven by increases registered for biomedical manufacturing (13.3%) and chemicals (2%) meanwhile slower expansion were registered for transport engineering (4.2%) and general manufacturing (4.1%). In contrast, the electronics cluster declined for the third consecutive month by 5.5% yoy (-2.1% in January), while the precision engineering cluster maintained a double-digit decline of -12.9% yoy (-10.7% in January). Despite the recovery in February, we believe the performance of Singapore’s manufacturing sector may wane in the coming months on the back of slower global growth and potential weaker global trade.

Source: Affin Hwang Research - 29 Mar 2019