Singapore Dec core CPI edges up, MAS watching oil

SINGAPORE - Singapore's central bank said on Monday it was keeping its 2016 inflation forecasts unchanged even after a renewed slide in oil prices, while core inflation edged higher in December due to higher services costs.

The full-year forecasts are being kept at -0.5 to 0.5 per cent for all-items inflation and 0.5 to 1.5 per cent for core inflation, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in their monthly statement on inflation.

"However, there is significant uncertainty over the outlook for average global oil prices for the year as a whole," they said, adding that they would continue to keep a close watch on global oil prices and the impact on inflation.

The MAS had surprised investors last January when it eased its exchange-rate based policy in an unscheduled statement, saying declining oil prices had significantly changed the city-state's inflation outlook.

A slide in global oil prices to more than 12-year lows this month and volatility in financial markets have refocused attention on the possibility of another off-cycle policy easing before the central bank's next scheduled policy review in April.

Policy easing could be an option, even before April, if oil prices fall further and trigger downward revisions to the outlook for headline and core inflation, said Hak Bin Chua, an economist for Bank of America Merrill Lynch.

Still, the baseline scenario is that the central bank will maintain its current policy stance rather than ease further, given that the MAS expects core inflation to pick up gradually in 2016, he said. "Oil prices are pretty volatile, so we'll see whether it does translate into the inflation forecasts and so on," Chua said.

Eight of nine analysts surveyed by Reuters from Jan 6 to Jan 11 said the MAS was unlikely to opt for another off-cycle easing, as the deflationary impact from sliding oil prices is expected to be less severe this time around.

The MAS core inflation gauge rose 0.3 per cent in December from a year earlier, data showed. The median market forecast in a Reuters survey was for a rise of 0.2 per cent.

The pick up in core inflation was due to a rise in services inflation, which accelerated to 0.9 per cent year-on-year in December from 0.7 per cent in November, due to higher costs for holiday travel and a smaller fall in telecommunication services fees, MAS and MTI said.

Core inflation is the focus of monetary policy. The MAS core inflation gauge excludes private road transport costs and accommodation, which can be influenced more by administrative policies.

The all-items consumer price index fell 0.6 per cent in December from a year earlier, official data showed, posting the 14th straight month of year-on-year declines. In November, headline CPI fell 0.8 per cent from a year earlier.

The central bank manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER). It can adjust the slope, mid-point or width of the band.