Singapore core inflation holds firm at 14-year high of 5.5% in February

SINGAPORE – Core inflation may have held firm in February after a faster rise in electricity and retail prices offset a slower increase in services costs, but some analysts believe respite is in sight amid the global banking turmoil.

Core consumer prices, which exclude private transport and accommodation costs, and reflect the expenses of Singapore households more accurately, went up 5.5 per cent year on year in February, unchanged from January. Still, the figure is the highest since November 2008.

The February figure is lower than the 5.8 per cent expected by analysts in a Bloomberg poll.

Core inflation picked up in January, after it plateaued from October to December, partly due to the higher goods and services tax that had just kicked in. Before October, it went up for eight straight months.

The headline consumer price index, or overall inflation, eased to 6.3 per cent in February from January’s 6.6 per cent, below analysts’ forecast of 6.4 per cent, the Monetary Authority of Singapore and the Ministry of Trade and Industry said on Thursday. This was led by lower private transport inflation.

The official projections for the year remain unchanged at between 5.5 per cent and 6.5 per cent for headline inflation, with core inflation forecast at between 3.5 per cent and 4.5 per cent. These estimates take into account the GST increase from 7 per cent to 8 per cent from Jan 1.

Maybank economist Chua Hak Bin said inflation may fall a lot more quickly in the coming quarters as tightening credit conditions and rising short-term interest rates dampen investment and consumer spending. 

That said, Dr Chua believes inflation will remain sticky downwards and well above MAS’ comfort zone.

This means that MAS will likely have to tighten monetary policy again at its April meeting to combat price pressures.