What everyone should expect from June CPI inflation

Headline number forecasted at 1.8%.

According to DBS, June CPI inflation today will likely surprise the market marginally on the upside. Consensus is looking for the headline number to print 1.8% YoY, after a reading of 1.6% in the previous month. 

DBS said, "We were spot on in our earlier prediction for May and we now expect the price barometer to show an inflation of 2.0%."

Here's more from DBS:

Granted that there hasn’t been any significant factor driving inflation in recent months except for COE premiums. And this is where the upward pressure on CPI inflation lies. Although COE premiums fell sharply in April-May, latest June COE premiums have recovered to near pre-tightening levels while wage pressure has continued to build up.

This is expected to be manifested in the headline number, which brings us to our against consensus forecast.

Regardless, we’ve highlighted in many of our earlier write-ups, that such policy adjustment (i.e., tightening in car loans) will only have a one-off, transient impact on the headline number given that the base effect will lapse twelve months later.

Underlying cost pressure is still strong and a lot has to do with the ongoing restructuring. We expect inflation to rise above the 4% mark 12 months from now. Barring any further policy effect, inflation should average 2.8% this year and 3.6% in 2014.