Headline inflation rises at fastest pace since 2013 at 4%

Elevated prices likely to push MAS to further tighten monetary policy.

Headline inflation rose at its fastest pace since 2013 at 4% year-on-year (YoY) in December 2021, going beyond market expectations of 3.7% YoY.

Core inflation likewise rose to 2.1% YoY, which is the first time it cross the 2% handle since July 2014, according to UOB.

This brings Singapore’s full-year inflation was 2.3% in 2021.

ING, in a commentary, said persistent inflation will likely continue in early 2022 due to elevated commodity prices and unresolved supply bottlenecks.

“Improving demand conditions will also likely drive additional price pressures, although the impact of the latest COVID-19 strain has yet to be felt,” ING added.

OCBC, for its part, said inflation will gradually ease only towards the end of 2022 elevated due to “domestic labour market recovery and the sharp uptick in airfares.

The higher-than-expected headline inflation will likely put pressure on the Monetary Authority of Singapore (MAS) to “tighten policy further to arrest the sustained pickup in prices,” according to ING.

UOB has also reinforced their call for MAS to further normalise monetary policy in April 2022.

According to UOB, MAS had “previously slightly raised the slope of the S$NEER policy band in October 2021.”

“The slope was increased from zero per cent, while the width of the policy band and the level at which it is centred was left unchanged. As such, we continue to look for the MAS to raise the policy slope to a 1.0% gradient (from the currently estimated slope at 0.5%), whilst keeping the width and centre unchanged in the upcoming April’s meeting,” UOB explained.

For 2022, UOB upgraded its headline inflation forecast to 2.5% from 2% with upside risks.