No need for alarm despite 1.6% month-on-month increase in January 2011 inflation: OCBC

Even though the January CPI print was above the market expectations of 4.4% y-o-y, OCBC states four reasons why Singaporeans should not be alarmed.

According to OCBC, the increase has been well-flagged and anticipated by the market - during the Q4 GDP growth revision, MTI had noted that "inflation is expected to rise further to 5.0% to 6.0% in the first few months of this year. Thereafter, inflation should moderated, especially in the second half of the year".

The relatively low base effects, with CPI at only +0.2% y-o-y in January 2010, would start to fade with time as we approach H2 2011.

Cooling measures like property curbs are already having some impact in stabilising market sentiment, transaction volumes and prices. Policymakers' rhetoric has emphasised that the government will do more if deemed necessary to anchor inflationary expectations, especially in property. Hence market consensus is also tilting towards a further monetary policy tightening bias at the April review.

FY2011 Budget measures are already in place to help Singaporeans, especially low-income households, cope with rising cost of living. These include the Growth Dividends, the personal income tax rebate, Workfare Special Bones, additional U-save & S&CC rebates etc.