COVID-19 weighs on deflationary pressures for 2020

But MAS kept its inflation forecasts to 0.5-1.5%.

Whilst the Monetary Authority of Singapore (MAS) stuck to its headline and core inflation forecasts of 0.5-1.5% for 2020, it has become more cautious and said that inflationary pressures are expected to remain subdued in the near term.

Also read: Core inflation hit 0.3% in January

MAS noted that firms will likely be discouraged from passing on any cost increases to consumers given a slight softening of labour market conditions and in light of the economic uncertainty. Maybank Kim Eng analyst Chua Hak Bin noted that softer services inflation drove core inflation to a four-year low.

Analysts are also bearish on Singapore’s inflation outlook, with Nomura projecting core and headline inflation to hit 0.7% and 0.5%. Nomura research analyst Euben Paracuelles commented, “Our forecast was supported by the sharp decline in core inflation in January, which was driven by a broad-based decline in both services and retails inflation, and reflecting subdued demand-pull pressures, in our view.”

Paracuelles noted that inflation risks are tilted to the downside due to the worsening economic outlook and more subsidies unveiled during the Budget announcement.

Maybank Kim Eng also cut its inflation forecasts, mostly due to the COVID-19 outbreak’s deflationary impact. Chua commented, “the collapse in demand will likely outweigh any price pressures from supply disruptions. The economic uncertainty will also deter firms from passing on any cost increases to consumers.”

Maybank Kim Eng trimmed its forecasts for headline CPI to 0.7% from 0.9% and core CPI to 0.9% from 1.2% in 2020 to account for the COVID-19 impact.