• Singapore's headline inflation rose to 0.2% in January from 0% in December due to higher private transport and accommodation costs
• Singapore’s government expects headline and core-inflation to rise and average between -0.5% and 0.5% and 0% and 1% in 2021 respectively
• Thailand exports maintained its two months’ positive territory with 0.3% in January from 4.7% in December 2020

Asean’s inflation likely to trend slightly higher in 2021 from global oil prices

Most Asean countries reported their headline inflation numbers this week. Singapore’s inflation rose to 0.2% yoy in January from flat rate in December due to higher private transport and accommodation costs. This was the first time overall inflation rose to positive territory since February 2020. However, core-inflation, which excludes cost of accommodation and private transport, contracted by 0.2% yoy in January from -0.3% in August, attributed to declines in service cost.

According to a joint statement by Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI), external and domestic sources of inflation are likely to pick up in coming months ahead due to expected recovery in global oil prices. However, the increase will be capped by the persistence of negative output gaps in Singapore’s major trading partners. The headline and core-inflation are projected to rise and average between -0.5% and 0.5% and 0% and 1% in 2021 respectively. As demand for domestic services gradually picks up, together with disinflationary effects of government subsidies introduced this year, the expectation is for Singapore’s core inflation to turn mildly positive in 2021. We also believe that inflation rates in most ASEAN countries will likely gradually increase in 2021 due to higher global oil prices.

Separately, in Thailand, growth in exports maintained its positive growth of 0.3% yoy in January, albeit lower than 4.7% in December 2020, supported by agriculture exports as well as positive growth in exports of manufacturing industry, which was also reflected in the recovery in demand from trading partners’ economy. However, imports fell by 5.2% yoy in January from 3.6% in December. The country’s trade balance fell into a trade deficit of US$0.2bn from a trade surplus of US$1bn in December. In January, Thailand’s manufacturing production index declined by 2.8% yoy (-2.4% in December), due to mainly lower production of machinery and tobacco products. This was the second consecutive months the index has been in negative territory.

Going into 2021, we believe that the anticipated rebound in global economic activity following the easing of restrictions, vaccines rollout as well as fiscal and monetary support will continue to support external demand for Thailand’s exports and production. However, we believe downside risk remains from rising number of Covid- 19 cases in some main trading partners. In order to support domestic tourism, Thailand’s government is preparing to ease restrictions for travellers. For example, the recent news of opening of golf quarantine programme, the authority hopes this will attract more tourist into the country. Thailand’s tourism sector contributes around 12% to its economy. Nevertheless, we believe that any risk of delay in vaccine rollout will place some downside risk for Thailand’s economic recovery.

Source: Affin Hwang Research - 26 Feb 2021