Singapore's March inflation to spike up to 1.3%

Due to February's low-base effect.

According to DBS, CPI inflation will spike up to 1.3% YoY. This is up significantly from a mere 0.4% YoY in the previous month.

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Why the sudden upward move? Well, the question is not so much about March reading but more about February inflation. In February, the headline number was depressed by the high base in Feb13.

So that makes March reading looks like a spike-up in comparison. In fact, March CPI inflation will be the first step in the “normalisation” of the inflation reading, which has been so highly distorted by the curbs on car loans introduced by the MAS early last year. 

That brought about the sharp corrections in the COE premiums and led to the lower than usual inflation readings over the past 11 months.

By April, inflation will rise sharply and possibly above the 3% level when the earlier policy effects fade-off. But the twist to the story is that the Land Transport Authority has recently announced that it will raise the COE quota during the May to July period by 32% to 4,019 per month, as compared to 3,043 per month in the preceding three months.
Note the private transportation cost accounts for a relatively large weightage of about 11.7% of the entire CPI basket. HigherCOE allocation could imply softer car prices ahead, likewise for CPI inflation.

However, this year could also mark the first time since 2007 where the core inflation will average higher than the headline inflation. Domestic cost pressure, particularly stemming from a labour crunch is the primary source of inflation.

And firms are expected to continue to pass on accumulated costs to consumers, leading to broad-based price increases across the economy. Ultimately, the message is that underlying cost pressure within the economy is still high even if headline inflation suggests otherwise.