How will the looming monetary policy tightening in October affect inflation

OCBC forecasts an "upside risk."

The consumer price index (CPI) will likely rise to 5.5% from the previous forecast of 5% year-on-year (YoY) whilst it also expects monetary policy tightening in October, OCBC analysts said.

It noted “upside risks” in inflation following the global supply chain woes, increase in food and energy prices, and the continued geopolitical issues such as Russian-Ukraine unrest and China’s strict pandemic lockdowns. 

Whilst all this happens, OCBC said it also sees targeted financial aid for lower-income households and vulnerable individuals with their cost of living issues.

The core inflation is also seen to breach 4% YoY from June onwards but it is not yet clear whether the core inflation will overtake headline inflation.

“There have been occasions when core [CPI] was higher than headline CPI such as between 2013-2019 (pre-COVID era) but the Monetary Authority of Singapore-Ministry of Trade and Industry (MAS-MTI) statement refers to headline CPI picking up more than core CPI this year, albeit core CPI will stay elevated above its historical average throughout this year,” OCBC said in its report.

The headline and core CPI in April were at 5.4% YoY and 3.3% YoY, respectively, OCBC said.

In a separate report, UOB analysts said the climb in inflation was overshadowed by the pace of increase in global commodity prices. It also suggests effectiveness in the monetary policy, where the MAS lifted the Singapore dollar nominal effective exchange rate policy band in the last three policy statements.

It kept its headline and core inflation projection to average 4.5% and 3.5% in 2022, respectively.