DBS Group Research forecasts Singapore core and headline inflation at 1.5% year-on-year in January 2026, up from 1.2% in December 2025. The rise is linked to low base effects and firmer services prices.
Price pressures have been rising since 4Q25 after an earlier period of weakness. The forecast covers both core and headline measures.
Industrial Production Outlook
Industrial production is expected to expand for a fifth straight month. Growth is projected at 20.0% year-on-year in January 2026, compared with 8.3% in December 2025.
Manufacturing output is supported by electronics performance. Electronics domestic exports rose 56.1% year-on-year in January, linked to AI-related demand for memory chips and server-related products.
The recent economic data validates the bullish forecasts we saw for January. Official figures released last week showed core inflation actually hit 1.6%, while industrial production surged by 21.5%, both beating expectations. This strong performance confirms that price pressures and AI-driven manufacturing are accelerating faster than anticipated.
Given this momentum, we believe the Monetary Authority of Singapore will be forced to maintain its hawkish stance, favouring a stronger currency to combat inflation. This makes going long on the Singapore dollar through currency futures or options an attractive strategy over the next few weeks. The path of least resistance for the S$NEER policy band appears to be a steeper appreciation.
Equity Volatility Positioning
The 56.1% jump in electronics exports is directly boosting companies on the Singapore Exchange. We should consider buying call options on the Straits Times Index (STI) or on baskets of technology-related stocks to gain exposure to this upside. The STI has already climbed over 4% in February, and this trend is likely to continue as earnings forecasts are revised upwards.
This environment reminds us of the semiconductor super-cycle we witnessed back in 2021, which led to a sustained rally in the tech sector. The current AI boom appears even more robust, suggesting that implied volatility in tech stocks may be undervalued. We could use straddles or strangles on key tech names to trade the expected increase in price swings.
With both growth and inflation running hot, Singapore government bond yields have been creeping higher. We can expect this trend to persist as the market prices in a tighter monetary policy for longer. Traders should consider using interest rate swaps or shorting bond futures to hedge against or profit from a further rise in yields.
