Core inflation turns positive for first time in a year

Singapore's core inflation turned positive for the first time in a year as the costs of food and services rose.

Core inflation, which excludes accommodation and private road transport costs, rose to 0.2 per cent last month on a year-on-year basis, a leap from the minus 0.2 per cent in January, according to data out yesterday.

Overall inflation also picked up to 0.7 per cent last month, from 0.2 per cent in January, driven by higher private transport inflation.

OCBC Bank head of treasury research and strategy Selena Ling said the faster uptick in inflation reflects the stronger recovery story.

But UOB economist Barnabas Gan noted the return of positive year-on-year inflation also suggests the reintroduction of higher prices in Singapore's basket of goods and services that may affect the day-to-day outlay of most households.

The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) noted that in the quarters ahead, external inflation is likely to pick up amid the recovery in global oil prices.

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Brent crude oil prices have risen further since the fourth quarter of last year, supported by output cuts among Opec+ members.

"However, continuing negative output gaps in Singapore's major trading partners should cap the extent of the increase in underlying global inflation," they said.

On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued.

"Core inflation is forecast to be mildly positive this year, as higher oil prices lead to a pickup in electricity and gas tariffs, and the disinflationary effects of government subsidies introduced in 2020 fade."

MAS and MTI expect core inflation this year to average 0 per cent to 1 per cent. But they added: "The forecast range for overall inflation is being reviewed given the recent sharper-than-expected increases in the prices of the non-core items."

This article first appeared in The Straits Times.