Why Singapore's inflation is likely to soar after May's benign figures

Predicted to edge up to 1.6%.

Accoridng to DBS, May's inflation is predicted to hit 1.6%, just a tad higher than 1.5% from April. However, beyond May, inflation will start to inch higher. The COE premiums have recovered to near pre-tightening levels while wage pressure has continued to build up.

"And as we’ve highlighted in our earlier write-up,such policy adjustment will only have a one-off, transient impact on the headline number given that the base effect will lapse twelve months later. Underlying cost pressure is still high and a lot hasto do with the on-going restructuring," said DBS.

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May13 inflation will remain benign. Although market expectation appears  to be pretty diverse, it reckons that the headline number will remain fairly unchanged from the previous month. A forecast of 1.6% YoY has been penciled into our forecast, just a tad higher than 1.5% recorded in the previous month.

Reason is simple. There hasn’t been any significant factor driving inflation between April and May except for the COE premiums. The COEs corrected sharply in April due to curbs on car loan financing introduced by the MAS earlier.

And between April and May, COE premiums were up marginally by just 1.3%. Factoring in a weightage of 11.67% for the private transportation index, the overall CPI inflation should be up just modestly by about 0.1%-pt.