SG’s inflation profile among the worst in Southeast Asia

Policymakers are struggling to curb the high domestic inflation, with the April headline number expected to register at 5% YoY.

In a statement, DBS Research said inflation risk is still the biggest concern for Singapore, which currently has the worst inflation profile in the Southeast Asian region apart from Vietnam.

“This is not usual for a country that has been used to exceptionally low inflation historically,” the analyst said, noting that average inflation over the last three decades has been 1.8%, which is about one-third of the inflation rate of 5.2% last year.

The key driver for the high domestic inflation in April will be transport CPI, driven largely by sky-high COE premiums, which is fast approaching the previous peak of about SGD 100k in 1994.

DMG Research said the government’s unwavering determination to bring car population growth rate down to 0.5% per annum, from 1.5% previously, as well as the continued high demand for private vehicles are the reasons behind the surge in COE premiums.

Glitches in public transportation, it said, have further compounded the increase in demand for private transportation.

“Even though Singaporeans who are not buying cars will not directly feel the pinch of higher COE premiums, companies will surely pass on the higher costs of commercial vehicles to consumers. Plainly, higher COE premium will remain a key driver of inflation in Singapore in the coming quarters,” DMG Research said.

The analyst also noted that espite several rounds of cooling measures, property prices have generally remained persistently high, thus becoming another driver for high inflation.

Extremely low mortgage rates, pent-up demand due to inadequate provision of public housing in previous years, rapid increase in income as well as the motivation to use property asset appreciation to hedge against inflation are creating a massive demand for housing, are pushing up property prices, it said.

This, in effect, has a spillover effect on rentals, which is captured in the CPI index.