Here's the impact of revamped COE on Singapore's core inflation

Core inflation forecast raised to 2% for 2013.

According to UOB Economic-Treasury Research, the recent announcement of the tweak in the Certificate of Entitlement (COE) categories (to be effective in Feb 2014) seemed have unintended consequences.

Here's more:

As a cluster of current Category A car models will be re-classified as Category B next year, consumers expect COE prices in Category B to be higher.

That prompted many consumers to bring forward their purchases. Additionally, car dealers sought to reduce their inventories and gave discounts right after the announcement.

This renewed wave of buying prompted an increase in COE premiums in both COE categories in September and we are inclined to think that private road transport costs will likely be on an uptrend over the next few months and may grow by 1-3% y/y on a monthly basis, rather than the contraction of 0.6% y/y seen from April to August this year.

That said, higher private transport costs may be negated by a slower growth pace in the housing segment.

With that, UOB Economic-Treasury Research is maintaining its headline inflation forecast of 2.6% in 2013, but will raise its core inflation forecast from 1.7% to 2% for 2013, as it thinks that core inflation will be facing some upward pressures in the months upcoming.

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