Macro: Inflation a growing concern
? CPI grew 5.6% yoy in May, highlighting growing price pressures, especially
on food, which could worsen amid the June chicken export ban by Malaysia.
? May IPI data significantly beat consensus, driven by semiconductors. Robust
demand for 5G and data centres is likely to keep the segment afloat.
? Headline retail sales growth for Apr was 12.1% yoy but marred by low base
and price effects. On volume basis, momentum appears to have slowed.
Chicken ban to add to inflationary pressures
Headline CPI inflation for May reached another high of 5.6% yoy vs. 5.4% in April, a rate
of growth not seen since Nov 2011 and breaching the Monetary Authority of Singapore’s
(MAS) year target of 4.5-5.5%. Core inflation also shot up higher at 3.6% yoy from 3.3% in
the month prior, above the year estimate of 2.5-3.5%. Food was the major culprit (rising
4.5% vs. Apr: 4.1%), with the component of meat, seafood, food services, and catered food
seeing the largest increases following supply chain issues and higher production costs. In
addition, the economy was running high, with labour market tightening leading to a rise in
wages. This demand-pull pressure partly contributed to the strong rise in core inflation.
We maintain our 2022F average inflation projection of 5.1% yoy. Prices are likely to trend
higher over the next few months. Malaysia announced a ban on chicken exports starting 1
June to stem its own domestic supply shortages, cutting off one-third of Singapore’s poultry
supply. On 14 Jun, the ban was partially lifted, with exports of kampung and black chicken
resuming, but the ban on broiler chicken, a main staple, remained in place. Meanwhile, the
demand-pull pressure is likely to remain strong, resulting in a firm labour market and
businesses passing through costs to consumers. This should continue to support a steady
increase in core inflation.
Electronics IPI likely to retain momentum
May industrial production grew by 13.8% yoy in May vs. Apr’s 6.4% and significantly higher
than consensus estimate of 5.5%. The upside surprise likely came from the strong growth
in the electronics cluster of 33.6% yoy (Apr: 10.4%), with the semiconductor components
seeing the largest increase at 45.7% (Apr: 12.9%). Indeed, the electronics sector continued
its stellar performance, driven by the robust demand from 5G markets and data centres
despite the hurdles from global supply chain problems. Also taking advantage of the strong
demand for electronics was precision engineering. The segment grew by 15.0% yoy vs.
Apr’s 4.7%, aided by semiconductor foundry investments into new equipment.
Nevertheless, electronics PMI data paint a mixed picture ahead. While it remained in
expansion at 50.5 reading, its sub-components, in particular the inventories, stocks of
finished goods, and deliveries, still showed contractions, highlighting the struggles faced
by the sector since the middle of last year. On the plus side, new export orders remain
expansionary, highlighting continued demand ahead. The increase in China’s
manufacturing capacity post reopening in June is also likely to add to growth.
Robust headline retail sales due to price and base effect
Singapore’s retail performance improved further in Apr, with headline retail sales growth at
12.1% yoy (Mar: 8.8%). By breakdown, several sub-components showed double-digit
growth, namely department stores (31.6% yoy; Mar: 17.0%), wearing apparel & footwear
(46.6%; Mar: 26.2%), as well as food & beverages (35.6%; Mar: 21.5%). While appearing
robust, headline retail sales are published on a nominal basis, which take into account the
price inflation during the month. In addition, the yoy growth numbers suffer from a low base
effect given that the circuit breaker measures were in effect in April last year. On a mom
seasonally adjusted volume basis, the momentum is showing some slowdown. Retail sales
volume moderated to +3.1% mom sa vs. Mar +11.7%. Over the next few quarters, we view
that retail is likely to slow further as pent-up demand dissipates while high inflation growth
eats into consumer spending.
Macro: Inflation a growing concern
? CPI grew 5.6% yoy in May, highlighting growing price pressures, especially
on food, which could worsen amid the June chicken export ban by Malaysia.
? May IPI data significantly beat consensus, driven by semiconductors. Robust
demand for 5G and data centres is likely to keep the segment afloat.
? Headline retail sales growth for Apr was 12.1% yoy but marred by low base
and price effects. On volume basis, momentum appears to have slowed.
Chicken ban to add to inflationary pressures
Headline CPI inflation for May reached another high of 5.6% yoy vs. 5.4% in April, a rate
of growth not seen since Nov 2011 and breaching the Monetary Authority of Singapore’s
(MAS) year target of 4.5-5.5%. Core inflation also shot up higher at 3.6% yoy from 3.3% in
the month prior, above the year estimate of 2.5-3.5%. Food was the major culprit (rising
4.5% vs. Apr: 4.1%), with the component of meat, seafood, food services, and catered food
seeing the largest increases following supply chain issues and higher production costs. In
addition, the economy was running high, with labour market tightening leading to a rise in
wages. This demand-pull pressure partly contributed to the strong rise in core inflation.
We maintain our 2022F average inflation projection of 5.1% yoy. Prices are likely to trend
higher over the next few months. Malaysia announced a ban on chicken exports starting 1
June to stem its own domestic supply shortages, cutting off one-third of Singapore’s poultry
supply. On 14 Jun, the ban was partially lifted, with exports of kampung and black chicken
resuming, but the ban on broiler chicken, a main staple, remained in place. Meanwhile, the
demand-pull pressure is likely to remain strong, resulting in a firm labour market and
businesses passing through costs to consumers. This should continue to support a steady
increase in core inflation.
Electronics IPI likely to retain momentum
May industrial production grew by 13.8% yoy in May vs. Apr’s 6.4% and significantly higher
than consensus estimate of 5.5%. The upside surprise likely came from the strong growth
in the electronics cluster of 33.6% yoy (Apr: 10.4%), with the semiconductor components
seeing the largest increase at 45.7% (Apr: 12.9%). Indeed, the electronics sector continued
its stellar performance, driven by the robust demand from 5G markets and data centres
despite the hurdles from global supply chain problems. Also taking advantage of the strong
demand for electronics was precision engineering. The segment grew by 15.0% yoy vs.
Apr’s 4.7%, aided by semiconductor foundry investments into new equipment.
Nevertheless, electronics PMI data paint a mixed picture ahead. While it remained in
expansion at 50.5 reading, its sub-components, in particular the inventories, stocks of
finished goods, and deliveries, still showed contractions, highlighting the struggles faced
by the sector since the middle of last year. On the plus side, new export orders remain
expansionary, highlighting continued demand ahead. The increase in China’s
manufacturing capacity post reopening in June is also likely to add to growth.
Robust headline retail sales due to price and base effect
Singapore’s retail performance improved further in Apr, with headline retail sales growth at
12.1% yoy (Mar: 8.8%). By breakdown, several sub-components showed double-digit
growth, namely department stores (31.6% yoy; Mar: 17.0%), wearing apparel & footwear
(46.6%; Mar: 26.2%), as well as food & beverages (35.6%; Mar: 21.5%). While appearing
robust, headline retail sales are published on a nominal basis, which take into account the
price inflation during the month. In addition, the yoy growth numbers suffer from a low base
effect given that the circuit breaker measures were in effect in April last year. On a mom
seasonally adjusted volume basis, the momentum is showing some slowdown. Retail sales
volume moderated to +3.1% mom sa vs. Mar +11.7%. Over the next few quarters, we view
that retail is likely to slow further as pent-up demand dissipates while high inflation growth
eats into consumer spending.