SINGAPORE - Singapore sharply lowered its headline inflation forecast for this year after a collapse in global oil prices, suggesting that authorities might have to further ease monetary policy soon, especially if economic growth continues to disappoint.
The Monetary Authority of Singapore and the Ministry of Trade and Industry said their 2016 forecast for all-items inflation has been revised down to -1.0 per cent to 0.0 per cent, from their previous forecast of -0.5 per cent to 0.5 per cent.
They said the downward revision was due to "the significant step-down in global oil prices in recent months" and larger-than-expected falls in the prices of car permits, or COE premiums, at the start of the year.
Singapore's core inflation gauge, however, posted the fastest annual rise in four months, increasing 0.4 per cent in January from a year earlier. Still, the overall economic picture pointed to risks of an easing in monetary policy, some analysts said. "I think markets are starting to price in higher probability of MAS easing, given that inflation continues to look pretty soft," said Jeff Ng, an economist for Standard Chartered.
Indeed, with China's cooling economy and faltering global momentum hammering the city state's exports, analysts are now placing a higher risk of an easing at the central bank's April review. "Expectations for MAS easing could escalate over the next few weeks. However, we don't expect any easing at the moment,"Ng said, noting that core inflation was still trending higher, albeit gradually.
The MAS kept its 2016 forecast for core inflation unchanged at 0.5 per cent to 1.5 per cent. This reflected the smaller weight of oil-related items in core inflation, as well as the exclusion of changes in private road transport costs, it said.
The all-items consumer price index fell 0.6 per cent in January from a year earlier, posting the 15th straight month of year-on-year declines, dragged down by a slide in global oil prices as well as falls in housing rents and private road transport costs.
Leong Wai Ho, an economist for Barclays, said the outlook for economic growth will be key in determining whether the MAS eases policy. "The battleground will be on growth, not inflation. So it's different from last year," he said.
The central bank eased policy twice in 2015, including in an unscheduled review in January of that year.