o  Excess capacity in some heavy industries could reduce growth in investment spending more than expected. o  Further volatility in stock market could undermine consumer confidence and spending. Third, the region. o  Financial conditions could tighten more than expected, as US Fed begins to hike interest rates. o  This could raise borrowing costs and constrain private spending. Inflation 9. Singapore experienced negative headline inflation for seven months now. But not facing deflation – price decline neither persistent nor pervasive. Temporary factors keeping inflation muted but underlying cost pressures persist. 10. Look at headline and core inflation separately. Headline inflation at lower half of forecast range in 2015 but should pick up in 2016 11. Headline or CPI All-items inflation averaged –0.4% y-o-y in first five months of 2015 compared to 1.0% for whole of 2014. 12  CPI All-items inflation likely to continue to be negative for rest of 2015. •  For year as whole, CPI-All items inflation expected to come in at lower half of forecast range of –0.5 to 0.5%. 13. Drag on headline inflation from COE premiums and accommodation costs. •  Car COE premiums currently about $ compared to about $ in H2 last year. 2  BIS central bankers’ speeches  •  Imputed rentals on owner-occupied accommodation are 3% lower compared to year ago. 14. But headline inflation to pick up in 2016. •  Effects of lower car prices and housing rentals could start to wear off on YoY basis.
Several hundred collective wage agreements will expire in the first part of 2016. It is the social partners who will negotiate and sign new collective agreements. What the Riksbank can do is to inspire confidence in the inflation target, which can in turn provide a starting point for the negotiations. The inflation target and the Industrial Agreement have worked well together since 1997. They can continue to do so. 6  BIS central bankers’ speeches  BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches