Headline inflation seen to rise up to 1.5% in 2021

Overall inflation rose to 2.4% in May, the highest since November 2013.

Headline inflation is projected to accelerate 1.4-1.5% during the year, analysts said separately, after it rose to 2.4% year-on-year in May.

The overall consumer price index in May also increased from 2.1% in the previous month, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) reported.

The rise was linked to the low base comparison during the Circuit Breaker period last year as well as the hike in transport prices. The HSBC Global Research said in a report that the base effects are “transitory,” and will likely peak between June and July.  

Read also: Overall inflation rises 2.4% in May

“Singapore saw a persistent deflation environment in the period between April and November 2020, on the back of a relatively weaker economic environment and low oil prices then,” UOB said in a separate report.

“As such, the rise of consumer prices may continue to be observed in the months ahead, although it is expected to be transitory when the base effects eventually dissipate.”

On this note, the UOB revised its headline inflation outlook to average +1.4% in 2021, up from its initial estimate of +1%. This means headline inflation is expected to rise 1.3% and 1.1% in the third and fourth quarter of the year, respectively.

It maintained its core inflation outlook at an average of +1% in 2021.

Meanwhile, the OCBC Treasury Research estimated the headline inflation to stay elevated at 1.6% and 1.5% in the third and fourth quarter of the year, respectively; whilst core inflation may stand at 0.9% average in the second half.

This implied, the bank said, that headline inflation could come at 1.5% YoY for the full year, which is at the upper end of its forecast range.

“The official rhetoric remains somewhat cautious, which suggests no urgency for any imminent monetary policy recalibration just yet,” it said.