Consumer Price Index (CPI) slowed for the second consecutive month to +3.9% YoY in Aug 2012 (Jul 2012: +4.0% YoY: Consensus +3.8% YoY). Core inflation rate (ex-accommodation and private road transport) also dipped for the second consecutive month to +2.2% YoY (Jul 2012: +2.4% YoY). From the previous month, the seasonally adjusted MoM inflation rate picked up to +0.6% MoM in August 2012 (Jul 2012: +0.2% YoY). Year to date, headline inflation averaged +4.8% YoY (Jan-Aug 2011: 5.1% YoY), while core inflation stood at +2.8% YoY (Jan-Aug 2011: 2.1% YoY). Our full-year inflation rate forecast is +4.4% (2011: +5.2%), which is at the top end of the official forecast of between +4% to +4.5%.

All major components were either stable or slowed, except “Transport” which accelerated to 6.0% YoY in August 2012 compared to 5.7% YoY in July 2012 and accounted for 28% of last month’s inflation rate. This was mainly due to the higher costs of “Private Road Transport” (Aug 2012: +6.3% YoY; Jul 2012: +5.9% YoY), reflecting higher petrol pump prices last month after the declines in the preceding two months. “Housing”, which contributed to 41% of last month’s inflation rate, eased to +6.1% YoY (Jul 2012: +6.4% YoY as rental for residential properties rose at a more moderate pace, causing the cost of “Accommodation” to slow for the second month in a row to +7.4% YoY (Jul 2012: +7.8% YoY). Meanwhile, there were relatively steady pace of increases in the prices of “Food” (Aug 2012: +2.3% YoY; July 2012: +2.3%) and other services such as “Health Care” (Aug 2012: +5.1% YoY; July 2012: +5.1% YoY), “Education and Stationery” (Aug 2012: +3.3% YoY; Jul 2012: +3.4% YoY), “Recreation and others” (Aug 2012: +1.2% YoY; Jul 2012: +1.3% YoY) and “Communication” (Aug 2012: +0.3% YoY; Jul 2012: +0.2% YoY).

A fine balancing act at MAS’ next monetary policy review next month. The sluggish global economic environment currently are expected to contain domestic food and energy prices as well as keep the pass-through of wages and other business costs moderate for the rest of the year, compared with during 2H 2011 and 1H 2012. However, transport and housing components are expected to remain the key contributors to inflation rate as COE premiums are expected to remain elevated and property leasing contracts are renewed at higher rentals, especially the HDB segment. Our FX Research Team sees a 50% chance of the Monetary Authority of Singapore (MAS) easing at it next monetary policy review in Oct 2012. The next key upcoming data to watch this week is the industrial production for Aug 2012 this Wednesday (26 Sep 2012).

Source: Maybank Kim Eng Research - 25 Sep 2012