In a report, DBS stated that headline inflation in Singapore will remain sticky in the next months. The bank is expecting the full-year headline inflation to hit 5.8%.
“Accommodation CPI inflation and residential rental price increases tend to be closely linked historically. Yet, the spread of accommodation CPI inflation with the year-on-year increases in the respective URA private residential and the SRX HDB residential indices reached double-digits in recent quarters, as the latter two indices surged, while the accommodation component within the CPI basket lagged,” said DBS.
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“We have observed historical episodes with such divergences, even though the drivers in previous residential property cycles were different from this cycle. In those instances, accommodation CPI inflation usually caught up to some extent with a lag,” DBS added.
According to DBS, accommodation CPI inflation may increase further due to the “rapid increases in residential property rental rates of above 20% YoY in 4Q22.”
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Additionally, DBS expects food inflation to present problems moving forward.
“Food, which alone accounts for 21.1% of the overall CPI basket, has risen persistently since Mar 2022, picking up to 8.1% YoY in Jan 2023, mainly driven by a steep increase in food serving services prices,” DBS shared.
“Jan’s food inflation print not only marked the fastest year-on-year increase since August 2008 but was also the largest rise when compared against other core CPI basket items. While other major components such as housing & utilities and transport have peaked and are showing clear signs of easing, food inflation continues to trend higher,” DBS added.
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