MAS core inflation to remain sticky in spite of easing headline prices

Blame it on the tight labor market.

Though the country’s consumer price index (CPI) eased slightly in August, the Monetary Authority of Singapore’s (MAS) measure of core inflation remained at 2.1%, moderating only slightly from 2.2% in July.

According to Nomura, the core inflation will remain sticky as a reflection of the continued tightness in the labor market.

Meanwhile, JP Morgan notes that the pickup in core prices reflected an increase in raw food prices, services, as well as prices in several other categories.

HSBC warns that the slight moderation is likely to reverse as the effects of economic restructuring continues.

“This is feeding through to tight labour market conditions and higher wages. Most importantly, the slight respite in core CPI shouldn't weigh much on the monetary policy decision next month since the MAS maintained its 2.0-3.0% forecast for core CPI in 2014, and expects domestic inflationary pressures to continue to be the driving force behind price increases, even if headline CPI stays subdued on the back of a weak housing market and the downward trend in CoE premiums,” noted HSBC.