SINGAPORE - Inflation will ease further before rising towards the end of the year, the Monetary Authority of Singapore (MAS) said in its bi-annual Macroeconomic Review released on Tuesday.
Domestic inflation has fallen in recent months, even recording negative prints in some months. Detailed data shows that this was not due to widespread price declines across the economy, the MAS said.
Rather, it reflected the plunge in global oil prices and an increase in medication subsidies, as well as softer housing rentals.
Oil prices are expected to remain subdued in the near term amid global oil oversupply. This is expected to further dampen domestic inflation, while possibly also lowering firms' production costs.
However, they are generally expected to recover gradually in the second half of the year, led by a slowdown in supply growth arising from the recent decline in oil investments, the MAS said.
Lower oil prices are also expected to eventually boost to global economic activity and oil consumption.
Domestically, the labour market will stay tight in the coming months, and the extent to which businesses can pass costs on to consumers should remain moderate given slow economic growth, the central bank said.
In particular, the retail and holiday travel segments - which have seen intense competitive pressures and are more influenced by economic sentiment - will be less able to raise prices.
In 2016, the MAS expects inflation to rise as global oil prices pick up and the effects of Budget 2015 measures dissipate.
At the same time, the labour market will still be tight.
"The risk remains that underlying domestic cost pressures in the economy could mount, leading to stronger cost pass-through to consumer prices, especially if economic conditions improve," the MAS said in its review.