DBS Group Research expects Singapore’s core and headline inflation to rise to 1.5% year-on-year in January 2026, up from 1.2% in December 2025. This increase is due to base effects and stronger services prices.
Inflation pressures have picked up since 4Q25 after a softer period earlier. This forecast applies to both core and headline inflation.
Industrial Production Outlook
Industrial production is expected to grow for a fifth straight month. Output is forecast to rise 20.0% year-on-year in January 2026, compared with 8.3% in December 2025.
Manufacturing is being supported by strong electronics activity. Electronics domestic exports jumped 56.1% year-on-year in January, driven by AI demand for memory chips and server-related products.
Recent data supports these stronger expectations. Official figures released last week showed core inflation rose to 1.6%, while industrial production climbed 21.5%. Both were above forecasts. This suggests inflation pressures and AI-led manufacturing are accelerating faster than expected.
With this momentum, we expect the Monetary Authority of Singapore to keep a hawkish stance. It is likely to continue favouring a stronger currency to help control inflation. As a result, going long the Singapore dollar through currency futures or options may be appealing in the coming weeks. The most likely move for the S$NEER policy band is a steeper pace of appreciation.
Equity Volatility Positioning
The 56.1% surge in electronics exports is lifting companies listed on the Singapore Exchange. We should consider buying call options on the Straits Times Index (STI) or on baskets of tech-related stocks to capture this upside. The STI is already up more than 4% in February, and the move may continue as earnings forecasts are revised higher.
This setup is similar to the semiconductor upcycle in 2021, which drove a prolonged tech rally. The current AI wave looks even stronger. That may mean implied volatility in tech stocks is priced too low. We could use straddles or strangles on key tech names to position for larger price swings.
With both growth and inflation running firm, Singapore government bond yields have been edging higher. This trend may continue as markets price in tighter policy for longer. Traders can look at interest rate swaps or shorting bond futures to hedge, or to benefit from further yield increases.
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