Inflation probably unchanged at 4.8% in February

Rising political tension in the Middle East a major threat going forward, says DBS.

Here’s from DBS:

The CPI inflation for Feb12 is on tap today and the headline number is expected to remain sticky at 4.8% YoY, unchanged from the previous month.

Although this is lower than the above 5% levels seen for most part of last year, it is largely due to the fading low base effect arising from the COE premiums.

Importantly, there are upside risks to inflation despite a slower growth momentum. Rising political tension in the Middle East, which will lead to higher oil prices, may pose an inflationary threat.

Strong domestic inflation arising from wage cost pressure will also keep inflation elevated. Even core inflation has risen to 3.5% in the previous month, from 2.6% in Dec11.

This is the highest in three years and it clearly reflects a buildup in underlyingcost pressure. Domestic supply side pressure is currently the key driver of inflation in Singapore. The worry is that it will probably remain so going forward, given the tightening in the foreign labour policy.

We have recently raised our inflation forecast for 2012 to 3.4%, from 3.0% previously. But even with this higher forecast, upside risk inflation remains.

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