Inflation to ease further amidst collapse in demand

MAS is expected to lower their inflation forecasts to -0.5 to 0.5%.

Inflation is expected to ease further in the coming months, as the COVID-19 pandemic caused a plunge in demand and outweighed any price pressures from supply disruptions, according to a Maybank Kim Eng report.

The report projects the headline and CPI inflation to hit 0.3% in 2020, amidst the deflationary impact of the outbreak and plummet of oil prices following the collapse of the OPEC+ alliance.

The Monetary Authority of Singapore (MAS) also omitted its inflation forecasts in its statement, announcing instead that its forecast range will be released by April. MAS is expected to lower their core and headline inflation forecast range to -0.5% to 0.5%.

They are also expected to ease to a neutral bias or zero S$NEER appreciation, and possibly re-center the band, at the April policy meeting.

Core inflation fell to negative territory at 0.1% in February for the first time since January 2010. This was dragged down by services, which saw falling airfares and holiday expenses as the pandemic resulted in rising travel restrictions and plunging demand.

Headline CPI also eased to a 7-month low of 0.3% as private transport softened on the back of smaller increases in car and petrol prices.

Services inflation contracted 0.4% due to lower airfares and holiday expenses, which collectively account for about 6% of the CPI basket. Travel restrictions are expected to persist even after confirmed cases peak as governments err on the cautious side.

Education and healthcare costs also dropped, and retail prices fell on the back of declines in clothing & footwear and medicines & health products. Food inflation remained relatively stable, but MAS cautioned that supply chain disruptions could pressure imported food prices.