Singapore core inflation pegged to hit 2% in 2H

Fiscal stance to be expansionary.

According to the Monetary Authority of Singapore's Macroeconomic Review, on a year-ago basis, core inflation is likely to stay at slightly above 1.5% in H1 before rising gradually to around 2.0% at the end of the year.

In comparison, CPI-All Items inflation is forecast to fall from 4.0% in Q1 2013 and remain broadly stable at below 3% for the rest of the year, assuming COE premiums stay at around current levels. In the alternative scenario, CPI-All Items inflation is projected to decline temporarily in Q2 and then rise to around 3.5% in Q4.

For the whole of 2013, MAS Core Inflation and CPI-All Items inflation will ease from last year. MAS Core Inflation is now expected to come in at 1.5–2.5%, lower than the previous forecast of 2–3%.

This downgrade is entirely due to weaker-than-expected price increases in the past two quarters and, hence, a lower starting point in 2013. Reflecting this,
as well as the lower projection for COE premiums, CPI-All Items inflation is now likely to be 3–4%, compared with the previous forecast of 3.5–4.5%.

Imputed rentals on owner-occupied accommodation and car prices will account for more than half of CPI-All Items inflation.

The MAS also noted at around 1.6% of GDP, the fiscal policy stance, as represented by the fiscal impulse (FI) measure, will be slightly expansionary in CY2013.

Amid the positive, albeit narrowing output gap, this expansionary Budget incorporates targeted measures designed to help households cope with the higher cost of living and tide businesses over this period of economic restructuring.

While the FI measure provides an indication of the short-term aggregate demand stimulus arising from fiscal policy, it does not fully quantify the impact of the Budget on the economy. To assess the effects of Budget FY2013 on GDP and consumer prices over 2013–14, EPG simulated some of the key measures that would affect households and firms using the Monetary Model of Singapore.