COE premiums to rise as much as $100K

Recent tenders are pushing COE premiums to a peak level last seen 18 years ago, says DBS.

Here's from the DBS Research:

Inflation for Mar12 is on tap today while industrial production index for the same month is due this Thursday. Fading low base effect arising from the COE premiums has been the factor behind recent moderation in inflation rate but that will have little impact when COE premiums have been marching steadily northward. In fact, COE premium reaching the previous peak of about $100K in 1994 appears to be on the cards given the increase in recent tenders. Plainly, higher COE premium will remain a key driver of inflation in Singapore in the coming months. Concomitantly, oil prices have hovered around the USD 120 mark for much US Fed expectations of the month. Given these 2 factors, expect transport CPI to have a big role in pushing the headline inflation reading higher.

Indeed, the headline price barometer is expected to inch slightly higher to 4.8% YoY, up from 4.6% in February. In addition, domestic inflationary pressure is likely to stay elevated, largely driven by higher wage cost. Much has to do with the government measures to tighten the inflow of foreign workers. As long as the tightening in foreign labour policy remains in place, core inflation will remain high.

Separately, industrial production index due this Friday to likely to disappoint judging from the sharp drop in non-oil domestic export (NODX) growth reported last week. Headline NODX growth came in significantly worse than expected. It plunged by 16.8% MoM sa (-4.2% YoY) versus consensus forecast of -4.3% MoM sa (7.1% YoY). This is the sharpest monthly drop on record. With that, expect this set of poor export numbers to be reflected in the industrial production figure, which will consequently bring about a downward revision to the headline GDP growth figure for 1Q12. We look for a 10.7% YoY decline in the industrial production index for the month.