Full-year 2011 inflation may reach 3.8%: OCBC

Inflation forecast has been notched higher by 0.1% point due to the higher-than-expected January CPI print.

According to OCBC, headline CPI could peak around 6% yoy in the next two months, below moderating slightly to 4.6% in Q2, and subsiding below 3.0% by H2 2011. The risks for further monetary policy at the MAS review in April remains tilted towards further tightening, but we do not believe that the January CPI print had added or subtracted to the balance of risk per se. January CPI excluding accommodation rose 5.3% yoy, while MAS’ core inflation measure (which excludes accommodation and private road transport costs) eased from 2.1% yoy in Dec to 2.0% in January.

The second round of COE bidding tender in February revealed that premiums rose across the board, and offsetting the declines seen in the 9 February tender for Categories A and B. With short-term domestic interest rates remaining anchored near record low levels, the negative real interest rate situation looks set to persist for a while longer, with the last such period lasting from January 2008 to April 2009.