Inflationary pressures won't ease significantly: HSBC

Inflation is very much still on the agenda in Singapore. While this was not alarmist, it underscores the persistent inflation pressures in the economy.

Of course, the sequential uptick CPI inflation in May was heavily distorted by the April S&CC rebates. However, annual inflation is holding steady at a relatively high level as food, fuel, and accommodation costs have trended up over the past several months. The high level of prices for these categories are also adding to broader inflation pressures through their second-order impact by way of higher wages, pass-through of higher input costs, etc.

Now, the anticipated soft patch in global trade and spillovers from the tragic events in Japan could help bottle inflation in the near term to the extend it brings down international commodity prices and slows activity in Singapore through the trade channel. However, inflationary pressures are not expected to ease significantly considering the robust demand conditions at home and the tightness of labor markets.

The MAS will, therefore, look beyond the temporary slowdown in activity and not let its guard down on inflation.

Bottom line: CPI inflation in May remained elevated, underscoring the persistent inflation pressures in the economy. The MAS will look beyond the potential near term easing of inflation pressures and not let its guard down on inflation.