Chart of the Day: Why Singapore's inflation eased for the 'wrong reasons'

And MAS finds this unsettling.

According to J.P. Morgan, since hitting a 2013 high of 4.9%oya in February, CPI inflation slowed to 1.9% as of July. 

Core inflation eased as well, albeit more gradually, to 1.6% from 1.9% in July.

Here's more from J.P. Morgan:

This year, we forecast CPI and core inflation to average 2.6% and 1.7%, respectively, well below their 2012 averages of 4.6% and 2.5%.

Nevertheless, the MAS is not taking comfort in the lower CPI inflation rate, for a few reasons. First, accommodation and transport (which includes COEs), which monetary policy has little effect on, have accounted for 2.7%-pts of the 3.0%-pt decline in CPI inflation since February. 

Core inflation, which excludes most of those categories, has slowed only 0.3%-pt over the same period.

Second, while inflation rates are not likely to print anywhere near their 2011 and 2012 rates, price pressures will likely gain traction later this year from tight labor market conditions and perhaps from less benign import prices (COE prices have also started to rise again, which will contribute to higher CPI inflation).

Thus, while the MAS is unlikely to be alarmed by the inflation outlook, we expect CPI inflation will print in the 2%-3% range during the remainder of 2013 from the 1.5%-2% range in the last four months, while core inflation should creep toward 2.0%oya by year-end from 1.6% in July.