Climbing oil prices to hurt Singaporeans' purchasing power

The MAS reiterated its warning that imported inflation is likely to rise.

Singapore's headline inflation rose 0.4% in May. The Monetary Authority of Singapore (MAS) reiterated that “imported inflation is likely to rise mildly” as first seen in their two previous monetary policy statements.

The MAS also said that “global oil prices have rallied since the start of 2018 and are expected to average higher for the full year as compared to 2017."

UOB economist Francis Tan noted that with Brent crude oil prices moving higher, the risk is on higher, rather than lower, inflationary environment conditions in Singapore in the months ahead. "Cost-pushed type of inflation (rather than a demand-pulled type of inflation) due to higher international oil prices will only mean lower purchasing power for Singaporeans," he said.

Even if crude oil prices are higher this year compared to last year, UOB does not expect it to be substantially higher as it will likely trend in the US$70-80 range over the next four quarters. There were some changes in the MAS inflation expectations since the April 2018 monetary statement. T

an said, "In the previous CPI reports before April, the MAS expected 2018 core inflation to stay in the 1-2% range (it was 1.5% in 2017) and headline inflation to be 0-1% (it was 0.6% in 2017). Now, the MAS expects both core and headline inflation to come in at the upper half of the respective forecast range."

The higher expected inflation for 2018 provided some support for the central bank’s decision to “increase slightly the slope of the SGD NEER policy band from zero percent previously” in their latest monetary decision.

UOB forecasts 2018 core inflation to hit an average of 1.5% and headline inflation to hit an average of 0.6%.