Singapore’s overall consumer price index (CPI) inched up to 0.7% y-o-y in February, from 0.2% in January, according to figures jointly released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

The higher inflation was mainly attributed to higher private transport inflation, an increase in services cost, as well as food inflation during the month.

Private transport costs rose by 4.2% y-o-y, up from the 1.9% y-o-y growth in January, due to a stronger pickup in car prices and a smaller decline in petrol prices.

Meanwhile, services cost rose 0.5% y-o-y, reversing from the 0.3% y-o-y decline in January on the back of higher inflation for tuition and other fees, and a smaller decline in outpatient services costs.

Food inflation edged up 0.1% percentage points m-o-m to 1.6% for February as the price for non-cooked food saw a steeper increase. Prices of prepared meals rose at a similar pace m-o-m.

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The cost of electricity and gas fell slightly to 9.8% from 9.7% in January on the back of a smaller increase in gas prices.

SEE:MAS to continue accommodative monetary policy in 2021: Fitch Solutions

Accommodation inflation stood unchanged on the back of a steady rise in housing rents.

Cost of retail and other goods fell 0.6% percentage points m-o-m to 1.9% in February due to sharper reductions in the prices of clothing and footwear and personal effects. Prices of medicines and health products in February.

In February, the MAS core inflation of Singapore grew 0.2% y-o-y from a 0.2% decline in January due to an increase in services costs as well as higher food inflation.

Looking ahead, MAS and MTI predict a pick up in external inflation in the quarters ahead amid the recovery in global oil prices, though continuing negative output gaps in Singapore’s major trading partners should cap the extent of the increase.

Core inflation is estimated to be “mildly positive” in 2021 at 0%-1% as higher oil prices lead to a pickup in electricity and gas tariffs.

A revised forecast range for CPI-All Items inflation will be released in MAS’s upcoming monetary policy statement in April.

Analysts' remarks


February's CPI reading is the highest since January 2020, which is reflective of the faster recovery story, notes OCBC Bank's head of treasury research and strategy, Selena Ling.

The month's positive core CPI reading, which is also the highest since January 2020, reverted to positive y-o-y territory a month earlier than what OCBC expected.

On this, Ling estimates headline and core CPI to come in at 1.0% and 0.5% respectively.

”Global commodity prices have been buoyant, with crude oil prices supported by OPEC+ output cuts. Higher oil prices will also translate into a pickup in electricity and gas tariffs as well higher petrol costs, coupled with the fading of domestic Covid-19 subsidies,” she writes.

“Moreover, accommodation costs have edged up slightly, with rentals in some areas registering increases. However, capping the domestic cost pressures are the still subdued wage growth due to ongoing slack in the local labour market given that firms are still hesitant to hire, as well as muted commercial rents,” she adds.

While MAS has kept its 2021 core CPI forecast at 0-1% y-o-y, the central bank is likely to increase its 2021 headline CPI forecast to between 0.5% and 1.5% from -0.5% and 0.5% at the April MPS.

“This is realistic given the higher crude oil prices, vaccine-aided recovery and firms potentially passing on higher supply costs (eg. arising from global supply chain disruptions) to end-consumers as consumer demand normalizes further,” says Ling.

“However, our base view is that MAS will keep its S$NEER parameters unchanged at the upcoming April MPS. However, MAS rhetoric may also begin to tilt away to a slightly less dovish stance, but unless the core CPI forecast also warrants an upward shift going into 2022, the upward revision of the headline CPI forecast should not be interpreted as overly hawkish per se at this juncture,” she adds.

To UOB economist Barnabas Gan, the return of positive y-o-y inflation in February highlights two key issues.

“[First], it suggests the reintroduction of higher prices in Singapore’s basket of goods and services that may affect the day-to-day outlay of most Singaporean households. Moreover, higher core inflation may also affect policy-making, in view of the upcoming monetary policy meeting (MPM) by MAS in April,” he writes.

“On the back of the faster-than-expected increase in inflation, we upgrade our outlook for both headline and core inflation to average 1.0% in 2021, up from a previous estimate of 0.5%.”

“Note that the joint statement by MAS and MTI kept its core inflation outlook at a range of between 0.0% and 1.0% in 2021, but had refrained from providing an official outlook for headline inflation and citing that a revised outlook will only be provided in April’s MAS policy meeting,” he adds.

On the back of rising accommodation costs in February, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye say they expect costs to further inch up in the coming months due to a “gradual relaxation of borders”, which will provide a boost to the rental market.

“Rental prices have returned to above pre-pandemic levels for both condominiums and HDBs, and may rise by more than +1.5% in 2Q, based on our projections and monthly SRX data. Accommodation costs account for a large 22% weight in the CPI index,” they write.

On the figures, Chua and Lee have raised their 2021 forecasts for headline CPI to 1.3% from 0.8%, and core CPI to 0.9% from 0.7%.

This is as “both cyclical and structural forces will likely boost consumer prices in the coming quarters. Cyclical factors include rising commodity prices; supply & logistical bottlenecks; rising housing rents & healthcare insurance premiums; and higher foreign labour costs due to border controls and quarantine requirements”.

Chua and Lee expect MAS to maintain its policy of a zero S$NEER appreciation in April. However, like OCBC, the economists expect MAS to raise its headline CPI forecast to 0.5% to 1.5%. They also see MAS maintaining its core inflation forecast at 0% to 1%

“The economic recovery is sluggish and real GDP remains below pre-pandemic levels. We think there is a non-negligible probability (of about 30%) that the MAS may tighten at the October meeting if inflation overshoots, shifting back to a slightly gradual and modest appreciation stance,” they write.

“We do not think the MAS will be as accommodative as the Fed and allow for inflation to overshoot and stay above 2% for an extended period,” they add.  

“We also raise our 3M SIBOR forecast slightly for both 2020 and 2021 to 0.45% (from 0.4%).”