Chart of the day: Singapore inflation forecast to rise 1.2% this year

Find out what would drive this uptrend.

DBS revised its forecast for Singapore’s inflation to 1.2% from 0.9% previously, taking into account the upside risk to inflation in the coming months.

"Not only has inflation returned to the positive, the latest headline consumer price index (CPI) inflation for January rose to 0.6% on-year, up from 0.2% previously. Transport inflation was the key driver (2.8% on-year) amid the turnaround in global oil prices. Even core inflation has risen to 1.5% in the month," DBS said, noting that the rise will continue in the coming months.

What could drive this beside the faster growth momentum and higher energy prices, are the changes to the diesel tax and hikes in water price.

"The diesel tax will be restructured from the previous lump sum taxes on diesel vehicles to a consumption-based duty of S$0.10 per litre. The water price will also be increased by 30% over two phases, by July 1, 2018. In addition, a 10% water conservation tax will also be imposed on NEWater," DBS said.

It added, "All these will add to business costs and ultimately to consumer costs. Though policy measures to soften the net impact on consumers and businesses have been introduced, the effect on prices will be direct. Also, while the impact is expected to be transient since this is policy-driven, it will definitely lift headline CPI inflation for 2017. We now expect overall inflation for the year to rise to 1.2%, up from our previous forecast of 0.9%."


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