Analyst warns drop in transport cost may not last

While inflation is predicted at 2.7%.

According to BofAML, headline inflation remains subdued at +1.6% in May, edging only slightly higher from +1.5% in April. On a month-on-month seasonally adjusted basis, CPI rose +0.4% from April (after -1.5% fall in previous month).

Prices were led higher by housing (+2.6%) - because there were no conservancy & utility rebate this month - healthcare (+0.6%), food (+0.3%) and recreation (+0.2%).

Here's more from BofAML:

Falls were seen in transport (-2.4%) and clothing/footwear (-0.3%). Core inflation (excludes housing & private transport) rose to +1.7% in May from +1.4% in April.

We are forecasting headline inflation to average 2.7% in 2013 and 2.9% in 2014, slightly below the MAS range of 3% - 4%. Inflation averaged 3% in the first 5 months. The recent relief and fall in transport costs may not last, as the recent COE auctions have seen a sharp increase in COE premiums.

Latest COE bidding exercise saw COE premiums (in Cat E) for example rebounding to $83K on 19th June, up from the recent low of $62K on 24th April. This will likely translate into headline inflation rising to the mid-2% in July.

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