Singapore’s headline consumer price index (CPI) or inflation moderated to 4.5% in June on a y-o-y basis. The Monetary Authority of Singapore’s (MAS) core inflation, which excludes private transport and accommodation, eased to 4.2% on a y-o-y basis. The figures came almost in line with the forecast from the Bloomberg consensus of 4.4% for headline inflation and 4.2% for core.
The key contributors to the easing were due to lower private transport costs and a slower pace of inflation for food and services. Food prices moderated to a 5.9% y-o-y growth, down from May’s 6.8% as prices for non-cooked food and prepared meals rose at a slower pace. At the same time, steeper declines in petrol prices and a smaller increase in car prices also led to the lower inflation for private transport.
Inflation for the services sector slowed by 0.3% at 3.6% in June, down from May’s 3.9% due to the slower pace of hikes in holiday expenses and airfares. Accommodation also saw a slowdown to 4.5% down from the previous month’s 4.7% reading as an increase in housing rents slowed down.
On a y-o-y basis, food and recreation & culture topped the list by expenditure division with increases of 5.9% and 5.7% respectively. On a m-o-m basis, transport rose the most at 1.7% while clothing & footwear, communication and miscellaneous goods & services fell by 1.9%, 1.1% and 0.1% respectively.
On a m-o-m basis, headline inflation rose by 0.5% while core inflation increased by 0.2%.
In its release, the MAS has lowered its headline inflation estimate to average between 4.5% – 5.5% while its core inflation is pegged to average between 3.5% – 4.5%.
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“Excluding the transitory effects of the 1%-point increase in the GST to 8%, headline and core inflation are expected to come in at 3.5% – 4.5% and 2.5% – 3.5%, respectively,” says the central bank in its July 24 release.
“Upside risks remain, including from fresh shocks to global commodity prices and more persistent-than-expected tightness in the domestic labour market. 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,” it adds.
OCBC’s chief economist & head of treasury research & strategy, Selena Ling, thinks Singapore’s headline and core inflation figures are likely to ease further to 3.1% in the 2H2023. This should sink further to below the 3% y-o-y handle in 4Q2023 in particular, says Ling.
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“Imported costs should continue to decline from levels a year ago and the current tightness in the local labour market should abate. In addition, the increase in certificate of entitlement (COE) quota and ramp-up in housing units available for rental, private transport and accommodation inflation are also tupped to moderate over the course of this year,” she writes.
In addition, Ling sees the stabilisation of the inflation figures as an “affirmation” of the Monetary Authority of Singapore’s (MAS) decision to pause its policy in April.
Singapore’s headline and core inflation had peaked in August to September 2022 at 7.5% and 5.3% y-o-y respectively, she notes.
To this end, Ling is estimating that Singapore’s headline and core inflation for the FY2023 may come in at 4.3% and 4.0% respectively, which is within the MAS and the Ministry of Trade and Industry’s (MTI) expected range of 4.5% - 5.5% and 3.4% - 4.5% y-o-y.
“The two-sided inflation risks likely reflect the data-dependency mode for monetary policy trajectory going forward, which is the stance for many major central banks as well even though market players are bracing for the upcoming 25 basis point (bps) rate hike by the Federal Open Market Committee (FOMC) and European Central Bank (ECB) later this week,” she adds. “ That said, the policy skew may be slightly leaning more to the dovish side as we head into the year-end when core inflation continues to ease further.”
UOB’s senior economist Alvin Liew has lowered his estimates to 4.7% from 5.0% previously for headline inflation. He has, however, retained his core inflation estimate at 4.0% for the FY2023.
“While headline inflation is coming off slightly faster than expected, the moderation in the pace of core inflation remained in line with projection,” notes Liew.
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“As inflation continues to ease amidst a weaker growth outlook, this further affirms our view that the tightening cycle ended in April and the MAS will maintain this pause in the next meeting in October,” he adds. “If there is an off-cycle announcement before October, we think it will likely be due to a sudden worsening in external conditions leading to a sharp growth downgrade, so the MAS will likely shift to a more accommodative policy rather than further tightening in its next move, but that is not our base case to expect an off-cycle policy announcement for now.”
RHB Bank Singapore’s senior economist Barnabas Gan is keeping his prediction of seeing inflation momentum to ease further into the 2H2023 although he now sees the possibility of sticky prices in the 3Q2023.
Since late 2022, we expected Singapore’s inflation to decelerate into 2023, a view that is panning out quite nicely. Our proprietary Singapore inflation forecast model, which pencilled a full-year headline and core inflation forecast of 4.0%, suggested that the previous official headline CPI forecast of 5.5% – 6.5% was too high. This view has materialised today as policymakers downgraded their headline CPI expectations by 100 bps to 4.5% – 5.5%,” says Gan.
“Being a small and open economy, Singapore’s inflation remains dependent on global prices. Import prices have contracted on a y-o-y basis for five straight months, in line with the slowdown in both headline and core CPI prices year-to-date,” he adds, noting that a further slowdown inflation may be driven by domestic factors.
“The increase in the COE quotas and the increase in housing unit supply is expected to cap rental, accommodation, and private transport costs in the year ahead,” he points out. “Overall, we expect headline and core inflation momentum will decline to 0.1% – 0.2% m-o-m in 4Q2023, in line with long-term averages (2010 – 2019).”
That said, in the 3Q2023, Gan sees several factors that may bring about sticky prices including the improving global economic dynamics that may underpin consumer prices amid resilient demand. Potentially higher agricultural prices may also on the horizon in the coming months due to El Nino. Finally, the recent move to cut oil supplies by Russia and the Organization of the Petroleum Exporting Countries (OPEC) may continue to support energy prices in the months ahead. To this end, Gan is keeping his average Brent oil forecast at US$80 to US$90 per barrel for 2023.
The analyst has also retained his headline and core inflation forecast both at 4.0% y-o-y for FY2023.
“Official rhetoric kept its dovish stance, citing downside risks to inflation stemming from a sharper-than-expected downturn in advanced economies that could ease global inflation pressures. Still, MAS also cited that upside risks remain should there be ‘fresh shocks to global commodity prices and more persistent-than-expected tightness in the domestic labour market’,” he says.
Finally, Gan still sees the MAS retaining its policy parameters in its upcoming policy meeting in October.
“Our RHB Singapore dollar nominal effective exchange rate or S$NEER model indicates the NEER to be at 1.5% above the mid-point, up from around 1.0% above the mid-point at end-June,” he says.
“The stronger S$NEER has limited imported inflation, given the expensive SGD against Singapore’s key trading partners, thus suggesting that there remains no impetus for the MAS to tighten policy further especially given today’s official downgrade of Singapore’s inflation 2023,” he adds. “Note that the MAS had kept its policy parameters unchanged in the earlier April 2023 meeting, where we estimated the S$NEER at a 1.5% appreciation gradient with a +/-2.0% band. We think Singapore’s hiking cycle is over after five consecutive tightening moves since October 2021.”
HSBC Global Research’s economist Yun Liu said that it was “positive” to see “uneventful” inflation prints after a few months of surprises.
To her, Singapore’s job market data for the 2Q is the next indicator to watch. The data will be released around July 27 to 28.
“While wage data will be typically released later than the first batch, it is still useful to gauge how the labour market has evolved. The MAS has indicated in its assessment that ‘unit labour costs are expected to rise further in the near term, though at a slower pace’,” she writes.
In her note, Liu is expecting the MAS to loosen its monetary policy only in April 2024, with the slight possibility that the central bank may reduce its S$NEER policy band by 50 bps.
“While consistently cooling inflation strengthens our conviction that the MAS has completed this tightening cycle in April, it does not warrant an imminent monetary reversal in October. Alas, growth is decelerating sharply, but Singapore fortunately has avoided a technical recession. After all, the MAS will likely be constrained by high inflation by the October meeting. We forecast core inflation to decelerate only to 3.3% on average in 3Q2023, and fall closer to the MAS's
