Singapore’s headline inflation came in at 2.4% y-o-y in June, according to Consumer Price Index (CPI) data released by the Department of Statistics (Singstat) on July 23.
This is unchanged from May, which also saw 2.4% y-o-y growth. The headline inflation also came in lower than consensus estimates of 2.5% for June.
Core inflation – which gauges price increments to sectors other than accommodation and private transport – edged up 0.6% y-o-y, easing from 0.8% in May.
Singstate also released CPI data for the 1H2021 across household groups on July 23.
See also: Singapore's consumer price index grows across all household income groups in 1H2021
According to a joint statement by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) released on the same day, the headline inflation forecast for 2021 has been revised to between 1%-2%, compared to a range of 0.5%-1.5% projected previously.
MAS and MTI's forecast for core inflation remains unchanged at 0%-1% for 2021.
On a m-o-m basis, core inflation fell by 0.2% in June, while headline inflation was unchanged.
The flat headline inflation is attributable to the drop in the price of retail & other goods, which offset higher private transport and accommodation prices.
Prices for retail & other goods fell 1.8% y-o-y in June, compared to a fall of 0.8% in May. This was underpinned by a steep 9% fall y-o-y for clothing & footwear.
Transport prices grew 11% y-o-y in June, predominantly driven by a 14.9% y-o-y increase for private transport due to a steeper increase in car prices. Public transport and other transport services saw prices grow 1.8% and 2.3% respectively on a y-o-y basis.
The cost for food grew 0.9% y-o-y in June, edging downwards marginally from the 1% in May on the back of lower non‐cooked food inflation.
Accommodation prices grew 1.1% y-o-y in June, edging up from 0.9% in May, which MAS and MTI attribute to housing rents rising at a faster pace.
In contrast, electricity & gas prices continued to decline by 1.8% y-o-y in June, narrowing slightly from a decline of 1.9% in May. Take‐up in the Open Electricity Market (OEM) rose at a slower pace, thereby reducing its dampening effect on electricity prices.
Services inflation remained flat at 1.4% in June on a y-o-y basis, as lower inflation for point‐to‐point transport services was broadly offset by higher inflation for tuition & other fees and recreational & cultural services.
See also: Singapore's consumer price index grows across all household income groups in 1H2021
Looking ahead, MAS and MTI view the upward pressure on global inflation should ease in the latter part of this year, with surplus oil production capacity expected to cap the extent of oil prices increase.
Surplus oil production capacity should cap the extent of oil price increases.
“While there is the risk that inflation could persist in some of Singapore’s major trading partners, this would be tempered by the continued negative output gaps in many of these economies, which should help to moderate Singapore’s overall import price inflation,” MAS and MTI remark.
Back home, core inflation is expected to continue to gradually increase in the coming quarters, though this may be tempered by the return to tightened Covid-19 measures under Phase 2 (Heightened Alert).
In addition, uncertainty in the economic outlook will “weigh on consumer sentiment and hence price increases in the near term”. Wage growth is expected to remain muted as the slack in the labour market will take time to be fully absorbed, while commercial rents are projected to stay low.
Meanwhile, MAS and MTI view that private transport and accommodation costs should remain resilient on the back of firm demand for cars and rental accommodation, although the pace of increase in private transport costs is likely to slow as base effects fade.
To that end, headline inflation is expected to ease in the latter part of the year.
Following the raise in MAS and MTI's forecast, economists have largely kept their estimates for headline inflation - which were already higher - unchanged.
RHB Group's Singapore research team maintained their headline inflation forecast of 1.4% y-o-y, given that 1H2021 inflation averaged at 1.5% y-o-y. "We expect CPI inflation to be supported by the low base effect in July and August before gradually moderating on a y-o-y basis in the consequent months," the team says in a July 23 research note.
The way they see it, global commodity prices will ease in 2H2021 while the momentum for demand-led price pressures will dampen following the reimposition of the Phase 2 (Heightened Alert) from July 22 to August 18.
UOB economist Barnabas Gan echoes RHB's sentiments, anticipating that the base effect will gradually dissipate into the year ahead. "This further reinforces our view that the higher-than-usual inflation pressures are likely transitory, and should soften into year-end," he says.
Gan believes the risk for inflation in 2021 is "balanced". "Higher external inflation amid higher commodity prices and strong energy demand could continue in the latter half of 2021, although potentially higher global oil supply in 2H21 may limit the upward price pressures then," he explains.
"Increased Covid-19-led risks and social restrictions suggest the persistence of negative output gaps seen in some of Singapore’s key trading partners, which will likely cap import prices pressures," Gan adds.
Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye have also maintained their 2021 forecasts for average headline CPI at 1.8% and core CPI at 1%. "Core inflation may remain muted in July and August as the Phase 2 heightened measures dampen price pressures in retail and point-to-point services. We expect headline inflation to remain above +2% in 3Q2021, mainly driven by private transport and accommodation costs, before easing in 4Q as the base effects fade," they say.
Selena Ling, OCBC's head of treasury and research strategy, reiterates the same views, anticipating headline CPI to ease in the 2H2021 as base effects taper off. "While core CPI will tick higher in coming months, the return to Phase 2 (Heightened Alert) from July 22 and the implicit downside risk to 3Q2021 GDP growth outlook, should dampen consumer sentiments and hence private consumption. Wage growth should also stay subdued at this juncture," she says.
CGS-CIMB economists Terence Lee and Michelle Chia believe headline inflation has likely to have peaked, with core inflation remaining tame. "With the recent movements in commodity prices as well as a robust advanced 2Q21 GDP release earlier this month, they set the tone for a gradual but cautious policy normalisation, and we reiterate our view for a slight upward adjustment in the S$NEER slope in April 22," they say.
Photo: Bloomberg
