Check out these extreme scenarios in Singapore's inflation trend

Headline inflation plateaued to 4.7%, but core inflation matters more for policy.

Nomura Global Economics investigated Asia's inflation outlook in its Asia Special Report. Here's what analysts have to say in SIngapore's case:

In our base case, headline inflation moderates to 4.7% y-o-y in H2 2012 from 5.1% in H1, as we expect the fall in global commodity prices (which has a lagged effect on headline inflation) to offset domestically driven private road transportation and accommodation costs, which are likely to remain elevated. However, we expect core inflation (which excludes private transportation and accommodation costs) to ease at a faster rate in the months ahead due to earlier declines in import prices.

Under scenario 1, we would expect headline inflation to rise to an average 5.4% over the next 12 months, as rising food and energy costs (which constitute 32% of the CPI basket) add to existing domestic inflationary pressures, including those from still-tight labour markets. Under scenario 2, we would expect headline inflation to moderate sharply to 3.5% and to 1.5% in H2 2012 and H1 2013, respectively, as we would expect the output gap to widen significantly.

Risks to growth are skewed to the downside and we see scope for the Monetary Authority of Singapore (MAS) to revise its current 1-3% growth forecast range. At the same time, core inflation, which we believe remains the key policy parameter for the MAS, is likely to moderate in coming months. This therefore lowers the case for the MAS to maintain its appreciation bias of the SGD NEER band, estimated at 2%, at the next policy announcement in October.

Under scenario 1, where growth slows only modestly, we would expect the MAS to maintain its current stance in October and likely even in April 2013 as core inflation would likely start to turn up again, bringing downward pressure on short-term SGD rates.

Under scenario 2, we would expect the MAS to respond as aggressively as it did in 2008-09, moving to a neutral policy – i.e. a zero appreciation slope of the SGD NEER band. However, given the strong recovery we would then expect by H1 2013, and a relatively proactive MAS stance (changing the SGD NEER on the last three occasions), it is possible that the MAS would shift to a slight upward appreciation bias in April 2013.