Inflation hovers above 5% for the 4th month in June

DMG analysts slam hopes that prices could ease off as quickly as possible- learn why.

According to DMG Research, headline inflation re-accelerated faster than expected in Jun, rising by 5.3% from May’s 5.0%. This is the fourth straight month that headline inflation has hovered at 5.0% or more, signaling some stickiness in prices, it said.

Core inflation (excluding accommodation and private road transport) was once again unchanged from the previous month at 2.7% yoy in June. This was third consecutive month that the core has been stable at 2.7%.

Going forward, analysts from DMG Research says that inflation could continue to hover above 5% amid escalating housing cost and COE premiums.

Here's more from DMG Research:

As we have highlighted previously, domestic factors continued to be the driving force pushing inflation higher. It has been either housing and/or transport costs that have been the main culprits in the past couple of months. In Jun, it was housing cost (particularly rental cost) - up 9.7% yoy in Jun as compared to 8.2% in May - that pushed inflation higher. On the flipside, both transport cost and food prices slowed in June, rising by 8.7% and 2.3% yoy vs. 9.2% and 2.5% respectively in May. Services inflation, which is expected to remain elevated because of the tight labor market, eased a tad in Jun, rising by 2.8% yoy as compared to 2.9% in May.

Inflation remained elevated at 5.1% in 1H12 on the back of tighter COE supply and rising housing rentals but is expected to ease thereafter. Prices are likely to moderate as a result of weaker oil prices, the government’s responses to mitigate domestic conditions driving inflation higher and favorable base effects. However, prices are unlikely to ease off as quickly as we hoped on the back of elevated accommodation cost and we have re-worked our full-year forecast to reflect this with 3Q and 4Q headline inflation expected to rise by 3.5% and 3.4% yoy respectively vs. 3.4% and 3.0% previously. For the full-year, we now expect headline inflation to average 4.3% this year (from 3.8% previously), which at the upper end of MAS and MTI’s inflation estimates of 3.5-4.5% (they also expect inflation to come in at the upper half of its forecast range this year). But there could be still be further upside to our forecast if oil and food prices surge on escalating tensions in the Middle East and changing weather conditions. As for exchange rate policy, we do not expect any changes to MAS’ policy stance of a modest and gradual appreciation of the Singapore dollar given that economic growth is likely to underperform and inflation elevated. However, looser policy is also possible if the global environment deteriorates as a result of the ongoing crisis in the Eurozone.