Overall price pressures muted but inflation to keep edging up

A Newater plant in Changi. The MAS said policy changes like the water price hike will mean higher household and business costs in the short term.
A Newater plant in Changi. The MAS said policy changes like the water price hike will mean higher household and business costs in the short term.ST FILE PHOTO

Inflation will keep inching up this year driven mainly by pricier oil but overall price pressures will stay muted, the Monetary Authority of Singapore (MAS) said yesterday.

It pointed to uneven economic growth and the fragile labour market as factors that will help keep prices in check .

It also noted in its latest Macroeconomic Review that recent policy changes like the water price hike and diesel tax restructuring will mean higher household and business costs in the short term.

Inflation will rise this year but stay below 2 per cent, it said.

Core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - rose to 1.3 per cent in the first three months of this year from 1.2 per cent in the fourth quarter. This was due largely to higher prices of oil-related items.

The MAS expects oil to average about US$53 a barrel this year, about 20 per cent up on last year.

Administrative cost rises - such as the water price hike unveiled in Budget 2017 - will also contribute to a temporary pickup in inflation, though subsidies will offset the impact for eligible households. For example, the direct impact of the water price hike is estimated to add around 0.1 percentage point to both headline and core inflation this year.

"These administrative cost measures are in line with the need to reflect the true underlying scarcity value of resources," the MAS said.

A version of this article appeared in the print edition of The Straits Times on April 28, 2017, with the headline 'Overall price pressures muted but inflation to keep edging up'. Print Edition | Subscribe