Inflation making 'modest ascent' after bottoming out: MAS

MAS managing director Ravi Menon at the media brieng yesterday.
MAS managing director Ravi Menon at the media brieng yesterday. PHOTO: JOYCE FANG

Core inflation likely to average 1% this year; no change expected in policy stance on Singdollar

Inflation has bottomed out and could make a gradual pick-up in the rest of the year following a long period of negative inflation, according to the Monetary Authority of Singapore (MAS).

Its managing director Ravi Menon told a briefing that he also expects no change in the country's policy stance on the Singapore dollar.

"Inflation, which has been low for long, is on a modest ascent. Core inflation bottomed out in the fourth quarter of 2015 and picked up to 0.6 per cent in January to May 2016," Mr Menon said.

ON GROWTH AND SINGAPORE AS A FINANCIAL CENTRE

Upholding high standards of integrity in the financial industry is an absolute priority for MAS. There can be no compromise on this.

There is no doubt that the recent findings have made a dent in our reputation as a clean and trusted financial centre.

MAS is determined to fix the problem, working together with the industry.

Enhancing Singapore's reputation as a clean and trusted financial centre must be a collaborative effort by all stakeholders.

MAS MANAGING DIRECTOR RAVI MENON, on Singapore as a financial centre.

The global economy is headed for another year of lacklustre growth.

China's growth should slow but we do not expect a 'hard landing'.

Singapore's economic growth remains sluggish.

MR MENON, on Singapore and the global economy.

Core inflation, which excludes accommodation and private trans- port costs, will likely average 1 per cent this year and trend towards the historical average of close to 2 per cent next year, he said.

This estimate marked a slight upward adjustment from the previous official forecast that put core inflation this year in the lower half of the 0.5 per cent to 1.5 per cent range.

Mr Menon noted that a range of factors may push up inflation.

"The drag from oil-related items will continue to diminish. The disinflationary effects of some budgetary and other one-off measures will dissipate," he said.

Similarly, while the all-item headline inflation rate was a negative 0.9 per cent in the first five months of this year due to declines in housing rents and car prices, it is expected to climb out of negative territory and move towards 1 per cent next year, he added.

The MAS annual report was released separately from June's official inflation figures, also released yesterday. These showed that core inflation rose from 1 per cent in May to 1.1 per cent last month.

The headline inflation rate last month was negative 0.7 per cent, a smaller decline compared with May's 1.6 per cent drop.

Last month's headline inflation was stabilised by a smaller decline in accommodation costs as the buffer from May's service and conservancy charges rebate wore off.

MAS maintains its full-year forecast for headline inflation at a range of between a 1 per cent contraction and zero per cent.

With inflation potentially back on the uptrend, it said it intends to maintain the current monetary policy stance, with no further easing in the works after a zero per cent appreciation rate was set for the Singapore dollar in April.

"Unless there is a marked deterioration in the global economy or significant shift to the inflation outlook, there is no need to change the monetary policy stance. The current stance will help ensure price stability in the medium term," Mr Menon said.

OCBC economist Selena Ling agreed with MAS' rationale on maintaining the policy stance, and noted a weaker Singdollar does not necessarily guarantee stronger exports.

But Citi economist Kit Wei Zheng said that, while headline inflation may turn positive next month, the soft labour market and falling rents may be factors behind why the inflation numbers may not rise much.

Mr Kit puts a 30 per cent chance on an October easing, especially if upcoming data at home reveals economic fragility.

A version of this article appeared in the print edition of The Straits Times on July 26, 2016, with the headline 'Inflation making 'modest ascent' after bottoming out: MAS'. Print Edition | Subscribe