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The impact of rising oil prices on US consumer price inflation is likely to ease in 2027 as supply and demand conditions normalise, DBS Chief Investment Officer for North Asia Yeang Cheng Ling said on Monday.
Speaking at a media briefing on DBS' investment outlook for the fourth quarter of 2026, Cheng Ling said oil prices have risen by around 50 per cent from last year, while current US consumer price inflation assumptions are based on oil prices of around USD 100 per barrel. He said the high base set in 2026 would reduce the impact of any further increase in oil prices on inflation next year. The delta effect of oil going forward should not repeat into 2027. Because of the high base that is set in 2026, oil prices are already at USD 100 a barrel, Cheng Ling said. He added that DBS does not expect oil prices to rise by another 50 per cent from current levels, citing a normalisation in both demand and supply. Cheng Ling pointed to Saudi Arabia's oil exports, which stood at around 6 million barrels per day in September. He said the level was broadly in line with the country's average daily exports in 2025, indicating that oil supply was moving back towards normal levels. Oil price should not go up by another 50 per cent from current level because of the high base already set and also the normalising of the demand and supply backdrop, he said. A softer impact from oil prices could also provide the US Federal Reserve with greater flexibility on monetary policy. Cheng Ling said markets had priced in one more rate hike in 2026, but cautioned that predicting the Fed's policy path had become more difficult. Forecasting the Fed is less reliable, he said, adding that investors would have to navigate on thinner ice as the central bank's policy direction becomes less clear. Responding to a question from ANI, another DBS official said measures taken by the Reserve Bank of India in June, including FCNR swap windows and the resulting inflows, had helped strengthen India's foreign exchange reserves to record levels. The official also said markets were expecting 50 basis points of rate hikes in the current fiscal. On Indian bonds, the official said domestic bond yields have remained elevated, while the spread between US 10-year and Indian 10-year yields has narrowed sharply. The short end of the yield curve is expected to adjust to repricing, while the long end is likely to remain above 7 per cent. DBS also highlighted the growing role of gold in central-bank reserves. Cheng Ling said gold now accounts for close to 30 per cent of central banks' foreign reserves, surpassing US Treasuries, whose share has declined to around 22 per cent. He said quarterly gold purchases have also roughly doubled over the past four to five years compared with the previous decade. For investors, DBS outlined a Build Resilience approach based on four themes -- broadening the equity rally, redefining quality, diversifying through alternative investments and increasing exposure to gold. DBS said its barbell investment strategy delivered a 12-month net return of 10.4 per cent, compared with 9 per cent for a balanced benchmark. The risk-diversifier allocation, led by gold, recorded a return of 16.4 per cent. (ANI)
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