Halister News

(Bloomberg) -- Singapore dollar is increasingly less influential on the country’s inflation compared with oil prices, Bloomberg strategist Masaki Kondo writes.

• Oil’s correlation with consumer prices reached its highest level since at least 2002 while SGD’s correlation with the island’s inflation fell from its peak during this period
• Inflation’s correlation with year-on-year changes in Singapore dollar’s nominal effective exchange rate peaked at 0.83 in Aug. 2015 and has declined to 0.53 since then, based on rolling 36-month basis
• Correlation between inflation and WTI futures changes y/y reached 0.88 in March, highest since at least 2002; it stayed near that level in April
• Oil’s impact on inflation has become bigger as a result of sharp and protracted drops in crude prices, Toru Nishihama, emerging-market economist at Dai-ichi Life Research Institute in Tokyo, says in interview
  • Continued weakness in crude prices suggests further downside risk to inflation and scope for MAS easing
• Crude prices fell 19% y/y in May, extending consecutive monthly declines started July 2014
• May CPI due 1pm local time on June 23; est. -0.8% y/y vs -0.5% prior
• NOTE: Singapore’s central bank manages its monetary policy and inflation by adjusting the SGD against a trade-weighted basket of currencies
• NOTE: Year-on-year changes in SGD NEER and WTI futures are calculated based on month-end values
• NOTE: Masaki Kondo is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.