Singapore’s inflation to remain elevated in the short term, but expected to moderate in H2 2023

Singapore’s inflation to remain elevated in the short term, but expected to moderate in H2 2023

SINGAPORE — The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) have issued an update on the country’s inflation outlook.

The statement notes that global supply chain disruptions have eased, leading to a moderation in consumer goods inflation in advanced economies.

However, overall core inflation is still high, and energy and food commodity prices have fallen below their peak levels seen last year. Singapore’s import prices have also declined on a year-on-year basis.

On the domestic front, unit labour costs are expected to continue rising in the near term, and businesses are expected to pass on accumulated import, labour, and other costs to consumer prices.

However, this is expected to happen at a more moderate pace due to the slowdown in domestic economic activity.

Car and accommodation costs may remain firm in the coming quarters due to tight COE quotas for cars and strong demand for rental housing, respectively.

Private transport inflation fell from 12.1% to 8.6% due to a smaller increase in car prices and a steeper decline in petrol costs.

Despite these factors, MAS Core Inflation is expected to remain elevated in the next few months but on a broad moderating path.

This is before slowing more significantly in H2 2023 as imported inflation falls further and the tightness in the domestic labour market eases.

The statement also projected that headline and core inflation for 2023 as a whole will average between 5.5-6.5% and 3.5-4.5%, respectively.

Excluding the transitory effects of the 1%-point increase in the GST to 8%, headline and core inflation are expected to come in at 4.5-5.5% and 2.5-3.5%, respectively.

While there are upside risks, such as fresh shocks to global commodity prices and more persistent-than-expected tightness in the domestic labor market, there are also downside risks, such as a sharper-than-projected downturn in advanced economies that could lead to a general easing of inflationary pressures.

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