Analysts believe hike in inflation still at manageable level, pushing Normanton Park sales

According to The Business Times (BT), despite the rise in consumer prices in May – in which all-items inflation reached its highest level since 2013 - analysts don't expect the Monetary Authority of Singapore(MAS) currency settings to be normalised until April next year.

This is because core inflation (which excludes accommodation and private roads transport costs) is still considered to be manageable.

Prakash Sakpal, Senior Economist at ING Asia, stated to BT that inflation is not a concern right now.

This means that the MAS will likely leave the currency setting unchanged at its October review.

In May, headline inflation rose to 2.4% from 2.1%. Core inflation rose to 0.8% from 0.6%.

The MAS and Ministry of Trade and Industry (MTI), jointly released a statement claiming that the rise was partly due to a year-ago's low base when the city-state had been in a quasi lockdown.

Sakpal said that the rise in consumer prices was also due to supply-side factors like oil price. However, "the demand side pressure is still muted amidst resurgent COVID-19 spread".

Lee Ju Ye and Chua Hk Bin, economists at Maybank Kim Eng, still anticipate inflation peaking in July. They expect inflation to rise at around 3% for all items and 1.3% for inflation.

They raised their full year forecasts to 1%, which is a significant increase from the 0.9% they had earlier estimated, and then to 1.4% next.

Barnabas Gan, UOB economist, noted that the city-state experienced a "persistent inflation environment" between April 2020 and Nov 2020 due to a weaker economic environment than then and low oil prices.

According to BT, he stated that "as such, the increase in consumer prices may continue being observed in the coming months, although it's expected to be transitory once the base effects eventually dissipate."

Jung Sung Eun, an Oxford Economics Analyst, pointed out that the transport component accounts for more than three quarters of the rise in inflation.

According to BT, she stated that while this may increase headline inflation, MAS core inflation is well below 2%.

Private road transport inflation rose to 14.5% in May due to higher oil prices. Housing rents increased 0.9% in May because of rising costs.

After an increase in the cost of point-to-point transportation, telecom services, and health insurance, service inflation was 1.4%

"On the other side, the lack of tourism-led demand continued pressure retail prices lower. According to Gan, quoted by BT, prices for consumer goods were generally lower."

The cost of other goods fell 0.8% in May as a result of a 4.1% drop on clothes and shoes prices. This offsets the 2.4% increase in household durables.

Yun Liu, an economist at HSBC, warned that a rapid rise in accommodation costs could indicate "soaring property prices" within this market.

"MAS normalisation seems unlikely this year. However, it may opt for macroprudential tightening in order to curb price growth," she said in a report that was quoted by BT.

Dr Chua and Lee anticipate a rise in wages over the next year. They cite structural changes such as tighter foreign labour supply and the expansion of Progressive Wage Model pay floors in the retail and food and drink sectors.

MTI and MAS maintained their full year forecasts with core inflation hovering around 0% to 1% and headline inflation falling between 0.5% and 1.5%.

They reiterated that core inflation "continues to gradually increase", while inflation for all items will likely decrease in the second half.

With such news, private condominiums such as Normanton Park, developers, they don't have to worry about high inflation prices that will scare off the potential buyers.