Rising rents, COE premiums to fuel higher inflation

Inflation will average at the 5% yoy level breached this month as HDB rentals and car prices soar, predicts the government.

Wages and other costs will also add pressure, and help keep inflation elevated throughout the first half of the year before an expected slow decline begins by mid-2012.

Here's more from MAS and MTI:

CPI-All Items inflation and MAS Core Inflation will likely remain elevated over the next few months, before easing gradually in H2 2012. CPI-All Items inflation could average around 5% y-o-y in H1 2012 before easing gradually in H2 2012.

Accommodation cost will remain the largest contributor to CPI-All Items inflation this year as leasing contracts continue to be renewed at rentals that are considerably higher than those under existing contracts, especially in the HDB segment. Car prices could also increase if COE premiums rise further in response to the tight COE supply. In addition, wages and other costs will likely continue to pass through to consumer prices, albeit at a more moderate pace. MAS Core Inflation will remain close to 3% in the next few months before easing gradually thereafter.

For the year as a whole, CPI-All Items inflation is now expected to be 3.5-4.5% while MAS Core Inflation will likely be in the range of 2.5-3.0%. Accommodation cost will add more than one-third to CPI-All Items inflation, while car prices and services fees will each account for one-fifth. Another quarter will come from prices of commodity-related items.

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