Inflation to increase ‘by a bigger magnitude’ in coming months: analysts

Inflation further accelerated to 5.4% in March.

Analysts have warned that headline inflation has “yet to peak,” despite hitting 5.4% in March.

It could increase “by a bigger magnitude” in the coming months amidst tightening of supply chains and still elevated global commodity costs, they added.

“MAS and MTI flagged that external inflationary pressures have intensified amid the global commodity price surge and renewed supply chain problems due to the Ukraine war and the regional Covid situation, although China was not specifically mentioned,” said Selena Ling, OCBC head of treasury research & strategy.

“In addition, domestic labour cost pressures are likely to support a firm pace of wage increases over the rest of this year, with businesses passing on more of the elevated and cumulative business cost increases to consumer prices, which will keep core inflation significantly above its historical average,” she added.

Taking into account these factors, OCBC has raised its 2022 headline CPI forecast to 5.0% YoY from the previous 4.2% YoY.

As for the core inflation, Ling said it will also likely to accelerate further in the coming months before moderating towards the year-end, but retained their 2022 forecast at 3.5%.

For his part, UOB economist Barnabas Gan expects core inflation to go past 3.0% for the rest of 2022. 

"We expect MAS to further steepen the S$NEER gradient slightly in its upcoming Oct 2022 policy statement, while leaving the width of the band and the level at which it is centred unchanged," Gan said. 

ING senior economist Nicholas Mapa likewise said MAS will remain hawkish as inflation continued to pick up, expecting price pressures to persist in the near term. 

“Surging core inflation will likely keep MAS on its toes but a slowing global economy complicates the decision-making process in 2022.  We believe MAS could resort to additional off-cycle adjustments should core inflation threaten to breach the top-end of its most recent forecast of 3.5%,” Mapa said.