Singapore’s headline and core inflation have reflected increases in the month of August, according to figures released by the Department of Statistics Singapore (SingStat).
During the month, Singapore’s headline consumer price index (CPI) rose 2.4% y-o-y in August, easing from the 2.5% y-o-y growth in July.
Meanwhile, MAS core inflation edged up to 1.1% y-o-y in August, from 1% y-o-y in July.
On a m-o-m basis, headline CPI rose by 0.5% while core CPI picked up by 0.2%.
See also: Singapore's headline inflation comes in at 2.4% for June; MAS and MTI raise forecast
Headline inflation, or CPI-All items inflation measures the total inflation in the economy, encompassing all the expenditure divisions, groups and classes.
MAS core inflation, on the other hand, measures price increments excluding the accommodation and private transport sectors.
The lower growth was due to the slower increase in private transport, which more than offset the increase in core inflation.
The rest of the sectors, especially housing & utilities, registered increases on a m-o-m basis.
In August, private transport increased by 10.8% y-o-y, compared to the 12.6% y-o-y growth in July. According to the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI), the lower pace in growth was due to the smaller increase in car prices and the decline in other private transport services costs.
On a y-o-y basis, the higher CPI was led by transport (8.3%), housing & utilities (2.2%) and health care (1.7%). This was offset by lower spending in clothing & footwear (-6.2%) and communication (-2.2%).
In its outlook statement, MAS and MTI indicated that core inflation is projected to increase gradually in the coming months.
Meanwhile, the projected pickup in accommodation inflation would support a “modest rise” in CPI-All items inflation in 4Q2021.
In 2021, MAS core inflation is still expected to average between 0-1%, and CPI-All items inflation is forecast to come in between 1-2%.
According to the Singapore Research team at RHB Group Research, August’s numbers printed 2.4% y-o-y in line with the Bloomberg consensus estimate.
Moving forward, the team says it expects y-o-y CPI inflation to moderate from September as the low base effect begins to dissipate.
It also expects a sequential slowdown for headline inflation in the months forward.
Crude oil prices are expected to ease in 2H2021 due to the pickup in oil production.
“We continue to expect soft recovery in the labour market, capping domestic price pressures. Nonetheless, upside risk to price pressures remains given the ongoing issues in the global supply chain”.
To JP Morgan analyst Ong Sin Beng, core CPI could reach between 1.5% to 2.0% on year average by 2Q2021.
This, he says, is “driven by a combination of elevated supply-side pressures” and also “from the earlier-than-expected normalisation of activity given the shift to an endemic equilibrium, which shows little sign of reversing despite rising hospitalisations even as the share of active cases requiring hospitalization has declined following a shift in treatment protocol”.
“Moreover, the policy focus on raising the incomes of low-wage workers, which was announced in late August with the national day rally speech, suggests that labour cost pressures will be biased to the upside in the coming quarters, although the pace and breadth of the increases remain unclear,” he adds.
On this, Ong expects that the MAS will be pre-emptive and shift the slope of the NEER to positive from flat and “possibly raise the mid-point” as well.
UOB economist Barnabas Gan has increased his estimates for headline inflation to 1.8% for 2021, while his expectations for core inflation are kept at between 1.0%.
This is in line with his July estimate that there may be upside risks to his initial headline inflation outlook at 1.4%.
“With our upgraded inflation call, risks now appear balanced; upside risks may continue to be seen from the sustained strengthening of Singapore’s economy, which in turn would translate into a tighter labour market and stronger consumer spending power. On the flip side, the increasing community COVID-19 cases in Singapore, coupled with the negative output gaps seen in some of Singapore’s key trading partners, will likely cap prices pressures in the months ahead.
Like the rest of the analysts, Gan says the low base effects in 2020 is expected to dissipate into the year ahead. Meanwhile, the higher unemployment at 2.8% in July “suggests that disposable income and spending power may be capped as more time may be needed to fully absorb the slack in Singapore’s labour market”.
Finally, the lingering Covid-19 risks should continue to limit commercial rents, “thus capping overall business cost pressures”
Photo: Bloomberg
