Analysts are keeping their predictions of further tightening from the Monetary Authority of Singapore (MAS) at the next scheduled Monetary Policy Statement (MPS) in April next year.
MAS core inflation rose to 5.3% y-o-y in September from 5.1% the month prior, a 0.5% seasonally adjusted m-o-m increase and the fastest pace since November 2008, says the central bank in a statement released jointly with the Ministry of Trade and Industry (MTI) on Oct 25.
Global central banks, including MAS, on heightened alert against prematurely relaxing their guard against inflation: OCBC
Selena Ling, OCBC Bank’s chief economist and head of treasury research & strategy, says that inflation is likely to remain an important consideration in the upcoming FY2023 Budget and the next scheduled MAS MPS in April 2023, with more cost-of-living relief and further monetary policy tightening potentially still on the table.
“Looking ahead, MTI-MAS articulated that imported inflation is expected to remain significant for some time due to ongoing supply constraints for energy and food commodities and tight labour markets in major advanced economies, whilst the domestic price pressures remain acute with unit labour costs also tipped to rise further amid robust wage growth,” says Ling.
Elevated utility costs and firm car and accommodation cost increases amid the tight car Certificate of Entitlement (COE) quota and strong rental demand will increase upward pressure to the domestic price front, she adds.
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As such, she believes core inflation is likely to stay elevated in the next few quarters before slowing more discernibly in 2H2023 as the current tightness in the domestic labour market eases and global inflation moderates.
Ling says this means core inflation is unlikely to peak and stabilise before the year is out. In addition, the official 2023 inflation outlook is tipped at 5.5% to 6.5% and 3.5% to 4.5% for headline and core inflation respectively, with the caveat that there are still upside risk including fresh shocks to global commodity prices and more persistent-than-expected external inflation, she notes.
Even adjusting for the transitory effects of the GST hike, she expects headline and core inflation for 2023 to come in at 4.5% to 5.5% and 2.5% to 3.5% y-o-y respectively.
See also: MAS set to hold monetary policy as inflation persists
Further MAS Tightening in 2023 Possible On Elevated Sep Core: Citi
Citi Research analysts Wei Zheng Kit and Jester Koh say the rise in September’s core CPI was above Citi’s forecasts, and possibly even MAS’s forecasts at the October MPS.
“Further upside surprises in core in the coming months will increase the possibility of further MAS tightening in 2023, including via another off-cycle move in January 2023,” they say.
The way they see it, the MAS-MTI outlook could be a “tad” more hawkish than October with external inflation possibly “more persistent-than-expected” given labour market tightness that is keeping wage pressures strong.
On top of this, they note that the forecast in the MPS that core inflation was likely to “stay around 5% for the rest of 2022” has been replaced with the assessment that core is now “projected to stay elevated in the next few quarters”, while tighter COE quota for cars and strong demand for rental housing could explain why MAS’s 2023 headline CPI forecast of 5.5% to 6.5% is significantly higher than Citi’s of 3.7%.
They are maintaining their 2023 core inflation forecasts at 3.6%, but see significant upside risks to their 2023 headline CPI forecast of 3.7% on stronger COE prices, and as higher housing rentals continue to feed through to accommodation costs with a lag.
Off-cycles likely done for the remainder of 2022 but still be a possibility in early 2023: UOB
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UOB’s senior economist Alvin Liew and senior foreign exchange (FX) strategist Peter Chia say the latest September CPI report has affirmed their view that core inflation will likely stay elevated for longer.
“Singapore’s inflation has continued to trend higher, with the increase in core inflation and upward pressures on services inflation particularly concerning. Earlier in the July CPI report, the MAS removed its previous expectation for core inflation to peak in 3Q2022 and in the August CPI report, it only retained the mention that ‘MAS Core Inflation is projected to stay elevated over the next few months’,” they say.
“In the latest September CPI report, the MAS now projects core inflation ‘to stay elevated in the next few quarters before slowing more discernibly in H2 2023’,” add Liew and Chia.
While they are keeping their 2022 headline and core inflation forecasts of 6.0% and 4.2% unchanged, they now expect headline inflation to average 5.0% and core inflation to average 4.0% in 2023. Excluding the 2023 GST impact, they are expecting headline inflation to average 4.0% and core inflation average 3.0% in 2023.
Liew and Chia note that Singapore’s monetary policy is further into a restrictive setting after five rounds of tightening since October 2021. “With the MAS pulling only one lever in October via the re-centring of the mid-point of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band, there is still room for further tightening into 2023, especially if core inflation does not show signs of moderation,” they say.
“While we believe off-cycles are likely done for the remainder of 2022, it may still be a possibility especially in early 2023, ahead of the April MPS,” add Liew and Chia.
CPI Momentum to Fade; MAS April Tightening Expected: RHB
RHB Group Research senior economist Barnabas Gan is expecting headline and core inflation momentum to decelerate into the year-end, but for y-o-y rates to remain high, while his view for MAS to further tighten monetary policy tightening in April 2023 remains unchanged.
According to Gan, sequential growth in headline CPI has softened significantly in September 2022, led by a decelerating m-o-m price increase especially in food and transport which is likely the consequence of lower commodity prices. “We are of the view that the further dissipation of commodity prices will persist and dampen inflation risks into the year-end,” he says.
For him, there are three reasons why MAS will further tighten monetary policy in April 2023. First, core inflation is expected to persist above the symbolic 2.0% handle from now to 1H23 before dissipating lower then, suggesting tighter monetary policy is needed to cushion price pressures.
Next, Gan says Singapore’s proprietary S$NEER model suggests that it has strengthened significantly since policy makers' decision to recentre the S$NEER band on Oct 14. “As of the
time of writing, the S$NEER rose to 1.0% above the midpoint, from 0.0%, in just over a week. This suggests that more appreciation headroom may be needed for a stronger SGD in response to the current inflation environment,” he points out.
Finally, he says there remain upside risks to Singapore’s inflation outlook, including unexpected shocks to global commodity prices and more persistent external inflation.
Gan has kept his headline and core inflation outlook unchanged at 5.8% and 3.8% in 2022, respectively.
