Why Singapore's lower January inflation is just an 'illusion'

It dropped big-time to 3.6%.

According to DBS, while inflation eased significantly to 3.6% YoY in January, down from 4.3% in December, DBS predicts it’ll shift back up to 4.1% in the month, thereby bursting any hope of lower inflation.

Plainly, January’s number was distorted by the high base in the same period last year, and hence the lower reading and giving the illusion that inflationary pressure has moderated.

Here's more from DBS:

Fundamentally, continued increase in labour cost and rental will keep inflation elevated. However, as we’ve pointed out in one of our recent write-ups, the plunge in the COE premiums due to tighter car loan financing terms, will possibly drive inflation lower.

Though hikes in the import tax for cars will lift car prices, the effect from the falling COE premiums will likely override that.

The net impact is probably a modest easing in inflation but the risk of a deeper drop remains.

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