MAS trims inflation forecasts as COEs, housing keep price rises in check

The Monetary Authority of Singapore (MAS) yesterday trimmed its inflation forecasts, saying consumer prices should stay subdued for the rest of this year and throughout next year, as the expected increase in the supply of Certificates of Entitlement dampens car prices while the rise in newly-completed homes moderates imputed rentals on accommodation.

Consumer Price Index (CPI)-All Items inflation is forecast at 1 to 1.5 per cent this year, given the recent weakness in car prices, the MAS said, lowering from its projection of 1.5 to 2 per cent. For next year, it is forecast at 0.5 to 1.5 per cent, reflecting also the impact of muted housing rentals.

The MAS also trimmed the top end of its range for core CPI — which excludes private road transport and accommodation costs — saying external price developments are expected to stay generally benign, given the ample supply buffers in the major commodity markets. Core CPI is forecast to average 2 to 2.5 per cent this year, it said, compared with between 2 and 3 per cent previously.

However, with the tight labour market and higher prices of imported food items from the region, core CPI is expected to remain firm, the MAS warned. For next year, the index is forecast at 2 to 3 per cent.

Against this backdrop, the central bank said it will maintain its policy of a modest and gradual appreciation of the Singapore-dollar exchange rate band to act as a buffer against inflationary pressures.

In late trading yesterday, the Singapore dollar fell 0.3 per cent to S$1.2753 per US dollar. The local currency has fallen about 1 per cent against the greenback this year.