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Singapore’s Core Inflation Declines 4.7% in May, prompting moderate outlook for inflation in H2 2023

SINGAPORE — Singapore’s core inflation declined to 4.7% year-on-year (y-o-y) in May, down from 5.0% in April.

In February and January of this year, core inflation had reached a 14-year high of 5.5% before decreasing to 5% in March and April.

A joint statement issued by the Monetary Authority of Singapore and the Ministry of Trade and Industry (MTI) on Friday (23 June), noted that the changes were primarily driven by a decrease in inflation for services and food.

Consumer Price Index (CPI) for all items inflation eased to 5.1% y-o-y in May, compared to 5.7% in April. MAS stated that this was mainly due to a decrease in private transport inflation, along with lower core inflation.

Core CPI edged up by 0.1% in May on m-o-m basis, mainly due to higher food price

On a month-on-month (m-o-m) basis, core CPI edged up by 0.1% in May, mainly due to higher food prices.

CPI for all items rose by 0.3% during the same period, driven by an increase in accommodation costs in addition to the rise in core CPI.

MAS mentioned that global supply chain frictions and consumer goods inflation in advanced economies have continued to ease. Global energy and food commodity prices have also further moderated.

As a result, prices of Singapore’s imported goods have continued to decline on year-on-year terms.

Looking ahead, MAS stated that considering all factors, MAS Core Inflation is expected to further moderate in H2 2023 as imported costs decrease and the current tightness in the domestic labor market eases.

Businesses are expected to continue passing through higher labour costs to consumer prices

On the domestic front, unit labor costs are expected to rise in the near term.

MAS anticipates that businesses will continue passing through higher labor costs to consumer prices, albeit at a more moderate pace due to the slowdown in domestic economic activity.

“Meanwhile, with the increase in COE quota and ramp-up in the supply of housing units available for rental, private transport, and accommodation inflation are expected to moderate over the course of the year.”

For the entire year of 2023, MAS project headline inflation to average between 5.5% and 6.5% and core inflation to average between 3.5% and 4.5%.

When excluding the temporary effects of the 1%-point increase in the GST to 8%, headline and core inflation are expected to be in the range of 4.5% to 5.5% and 2.5% to 3.5%, respectively.

“Upside risks remain, including from fresh shocks to global commodity prices and more persistent-than-expected tightness in the domestic labour market, “said the authorities in the statement.

At the same time, there are also downside risks such as a sharper-than-projected downturn in the advanced economies which could induce a general easing of inflationary pressures.

Inflation in most sectors eased in May

Private transport inflation fell to 7.2 percent in May from 10.4 per cent as car prices rose at a slower pace and the cost of petrol saw a sharper fall.

Services inflation fell from 4.3 percent in April to 3.9 percent in May, due to smaller increases in holiday expenses and point-to-point transport service costs.

Food inflation eased to 6.8 percent in May from 7.1 percent in the previous month, due to lower inflation for food services.

Accommodation inflation also experienced – from 4.9 percent to 4.7 percent – as housing rents rose at a slower pace.

Similarly, inflation for retail and other goods moderated to 2.8 percent from April’s 2.9 percent as the pricing of clothing, footwear, and household durables recorded smaller increases.

Meanwhile, electricity and gas inflation rose to 3.3 percentMinistry of Trade and Industry from 2.7 percent due to a larger increase in electricity costs.

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