Core inflation could hit 1.7% this year

It will likely hover around 2% in 2H17 and 1Q18.

According to Citi, MAS core inflation may end the year close to 2%, amidst rising inflation expectations.

“We raise our 2017 core inflation forecast slightly to 1.7% (from 1.6% previously). Given the impact of water tariff hikes in Jul 2017 and Jan 2018, core inflation will likely hover around 2% YoY in 2H17 and 1Q18.”

Here’s more from Citi:

This would likely be a notch higher than MAS’s implicit forecasts in the Apr 2017 MR, which we suspect expected core to average around 1.5-1.6% in 2017.

For sure, the higher core inflation print was largely due to electricity tariffs rather than broad-based demand pull inflation pressures, as various measures of inflation pervasiveness actually edged down. Upstream cost pressures remain generally well contained.