Singapore’s core inflation for April hit its highest level in more than a decade, and the pressure will further increase in the coming months.
While this may ease off towards the end of the year, “there remain upside risks to inflation from geopolitical and pandemic-related shocks,” according to the Monetary Authority of Singapore and the Ministry of Trade and Industry on May 23.
Driven by higher food and power prices, core inflation for April hit 3.3%, a pick up from 2.9% gain recorded in the preceding month. CPI-All Items inflation, meanwhile, was up 5.4% - the same pace seen in March.
“We think monetary policy may not be sufficient to contain the intensifying inflationary pressures, nor ease the tightness in the labour market,” state Maybank economists Chua Hak Bin and Lee Ju Ye, who expect MAS to maintain its current tightening stance at the next policy review in October.
“The government may have to provide a supplementary budget to ease the burden from the rising costs of living (especially food and utilities costs),” they add.
They believe the government may have to review the stringent foreign labour policies and delay the introduction of the local qualifying salary (minimum wage) and expansion of the Progressive Wage Model (to the retail sector) in September this year. These are measures meant to nudge local companies into improving productivity while reducing their reliance on foreign labour.
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“The reopening has increased manpower demand in the aviation and hospitality sectors, which will struggle to find local workers given the tight labour market. The tight labour market risks fanning a wage-price spiral where the rising costs will be passed on to consumers,” warn the Maybank economists.
“While non-resident employment improved in 1Q, based on the advance release by the Ministry of Manpower, the bulk of the expansion was driven by work permit holders in the construction sector, while non-resident employment in all other sectors was stable or only saw slight increases,” they add.
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For the whole of 2022, MAS and MTI project the CPI-All Items inflation to come in at between 4.5–5.5%, while core inflation is seen to range between 2.5-3.5%.
In contrast, the Maybank economists expect CPI-All Items inflation to be 4.8% and core inflation at 3%.
OCBC's Selena Ling has raised her CPI-All Items forecast to 5.5% from 5% previously and she expects the core inflation to end the year at close to 4% - up from her earlier forecast of 3.5%.
"This reinforces our expectation that the window is still open for another monetary policy tightening at the October MPS while more targeted fiscal measures may be forthcoming to assist lower income households and vulnerable individuals with their cost of living issues," adds Ling.
HSBC economist Yun Liu notes that even with these challenges, Singapore is in a relatively better policy position.
She points out how MAS was one of the "early and aggressive" Asian central banks to tighten its monetary policy as an 'pre-emptive' move to counter inflation pressure. She expects MAS will be "data-dependent" on what further policy moves it might make in the months ahead.
"On the fiscal side, if needed, Singapore still has the fiscal room to introduce additional relief measures, such as consumption vouchers and utility subsidies, to alleviate rising cost of living pressure," says Liu.
