3 reasons why prices will be sticky in 3Q23

Analysts have already observed price stickiness in July. 

Following the July consumer prices report, RHB believes that inflation momentum will ease further in 2H23; however, the expert said prices will likely be sticky in 3Q23.

“Empirically, we are already seeing sticky prices in July; food inflation remains supported above the 5.0% YoY handle, while momentum for housing & utilities inflation accelerated sharply,” RHB’s Senior Economist Barnabas Gan said.

In a report, Gan said there are three reasons for price stickiness in 3Q23; the first is the improving global economic dynamics, including that in ASEAN.

According to Gan, the improving global dynamics “may support demand-pull inflation in 2H23.”

Gan said potentially higher agricultural prices in the immediate months ahead due to an El Nino weather condition in 2H23 may also contribute to price stickiness for the quarter.

Lastly, Gan said recent moves to cut oil supplies by Russia and OPEC may continue to support energy prices in the months ahead. Gan forecasts 2023 average Brent oil price to reach US$80 - US$90 per barrel.

Whilst prices will likely have slow movements in 3Q23, Gan is positive that inflation will continue to decelerate in 2H23, forecasting a full-year headline and core inflation of 4.0%.

UOB’s Senior Economist Alvin Liew also remains comfortable with its current forecast for headline inflation and core inflation to average 4.7% and 4.0%, respectively, in 2023.

“Excluding the 2023 GST impact, we expect headline inflation to average 3.7% and core inflation to average 3.0% in 2023, both still above the ‘standard’ 2% objective,” Liew added.

Meanwhile, Liew also said that the central bank will likely keep the status quo for October 2023 following the July inflation report.

“While inflation concerns remained in recent months, it has visibly eased although still well above the 2% objective. It was also evident the growth outlook has been also subjected to greater uncertainty and biased to the weaker side,” Liew said.

“As inflation continues to ease amidst a weaker growth outlook, we are comfortable with our view that the tightening cycle ended in April and the MAS will maintain this pause in the next meeting in October,” Liew added.