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If you think inflation will ease for good, think again

 

It will hover around 4% throughout the year.

According to DBS, inflation reading for December is expected to inch higher. That is, just when everyone thinks that inflationary pressure in Singapore will finally ease for good, the headline number will surprise by posting a 3.9% YoY rise in the month, up from 3.6% in November. In fact, that previous drop is largely arithmetic and nothing to shout about.

Here's more from DBS:

The point is, domestic inflationary pressure is still exceptionally high. Even at 3.6%, it is still twice as high as the 30 years historical average of 1.8%. High COE premiums and rentals, along with rising labour cost remain the key drivers.

Note December number is further exacerbated by the fact that COE premiums hit a new high of SGD 97,000 (open category) in the month. That by itself already represents a 30-35% YoY increase. Private road transport accounts for 11.7% of the total weights in the CPI basket.

Going forward, inflation will run sideway, hovering around the 4% mark throughout the year. Those factors that have been keeping inflation at such higher than normal level, will continue to fuel the pressures. 

With inflation still higher than normal and growth outlook expected to improve, the Monetary Authority of Singapore (MAS) will most likely maintain its current SGD NEER appreciation policy stance in the upcoming review in April.



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