SINGAPORE - Singapore's annual headline consumer price index in December rose for the first time in more than two years, but weak consumption and a subdued labour market suggest that inflation will remain modest for some time.
The all-items consumer price (CPI) in December rose 0.2% from a year earlier, official data showed on Monday. That marked the first year-on-year rise in headline CPI since October 2014, when the all-items CPI also rose 0.2%.
Headline CPI had been dragged down over the past two years by lower global oil prices as well as falls in housing rents and private transport costs.
The downward pressure on all-items CPI has become less acute in recent months, however, helped by a rise in global oil prices. Headline CPI in November was flat from a year earlier, coming off a deflationary trend for the first time in two years.
Headline CPI in December edged up on the back of higher private road transport costs, which rose 1.7% from a year earlier due to higher petrol prices and car park fees, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry said in their monthly CPI statement.
"A return to positive headline CPI inflation disguises underlying softness, given the absence of more generalised demand-induced pressures," Weiwen Ng, an economist for ANZ, wrote in a research note.
"Domestic cost pressures will be muted, owing to a subdued labour market which will put a lid on wage growth. Furthermore, a moderation in commercial rentals will exert a strong disinflationary drag," he said.
Upward pressure on core inflation is likely to be held firmly in check, Mr Ng added.
The MAS core inflation measure in December rose 1.2% from a year earlier, down from November's 1.3% rise.
The MAS and MTI kept their 2017 forecasts for both headline CPI and core CPI unchanged. All-items CPI is expected to rise in a range between 0.5% and 1.5% this year from minus 0.5% in 2016, while core inflation is expected to average 1-2% in 2017 compared with 0.9% in 2016, they said.
The central bank has said that core CPI is the most relevant indicator for monetary policy. The MAS core inflation measure excludes changes in the price of cars and accommodation, which are influenced more by government policies.
Singapore's economy rebounded at the end of 2016, data showed this month, reinforcing expectations the central bank will stand pat at its semiannual policy review in April after earlier taking steps to support growth.
The MAS, which kept policy unchanged at its October review, eased policy in April 2016.