Housing costs spur 1.4% inflation growth

S&CC rebates to HDB residents is one key factor.

The 1.4% headline inflation in May due to the base effects relating to the disbursement of Service & Conservancy Charges (S&CC) rebates rose mainly on the back of higher housing and utilities costs. 

According to Maybank Kim Eng, the jump seen mainly reflects the different timing of S&CC rebates to HDB residents, which was disbursed in April this year versus May last year.

It also indicates the surge in the cost of electricity and gas by 19.1% from a year ago on the back of higher global oil prices.

"In particular, gas tariffs rose by 12.5% in May to record the highest level since October 2015. As a result, housing & utilities cost rose for the first time since July 2014 by 0.1% versus -4.6% in April," Maybank analysts Chua Hak Bin and Lee Ju Ye explained.

The two noted that most of the other components saw a softening or decline in prices in May except for food, which rose by 1.5% and clothing & footwear, which clocked in a 1.9% growth.

"Food inflation edged up in May, after recording +1.3% for the past three months, driven by a faster pace of increase in prices of non-cooked food items," the analysts stated.

With this, Chua and Lee expect the inflation to pick up gradually over the rest of the year, supported by a cyclical recovery as well as the planned administrative price increase.

"We are of the view that MAS will likely normalize and shift to a “slight appreciation bias” in October, given the cyclical growth recovery and upside risks to inflation. Growth is now approaching and growing near potential. The S$NEER is currently trading slightly below the mid-point of the band, by our estimates. We keep our headline & core inflation forecast unchanged at 1.2% and 1.6% respectively for 2017," the analysts explained.