Singapore’s CPI-All Items inflation (or headline inflation) increased by 5.5% on a y-o-y basis in March, moderating from the 6.3% print in February.
The Monetary Authority of Singapore (MAS) core inflation, which excludes private transport and accommodation, rose by 5% y-o-y in March, down from the 5.5% print in the month before.
The lower headline inflation came on the back of a decline in private transport inflation while core inflation fell due to lower inflation for services, food and retail & other goods.
In March, food inflation rose the most at 7.7% on a y-o-y basis. Recreation & culture came in next, increasing by 6.8% y-o-y. Clothing & footwear and transport rose by 6.3% and 6.2% y-o-y respectively.
In an April 24 statement, MAS and the Ministry of Trade and Industry (MTI) attributed the lower figures to the easing global supply chain frictions and the moderation in consumer goods inflation in the advanced economies. Energy and food commodity prices also fell below their peaks seen in 2022, said MAS and MTI
At home, the agencies expect unit labour costs to rise in the near term with businesses expected to continue to pass through costs from import, labour and other costs to consumer prices albeit at a more moderate pace. Meanwhile, increases in costs for cars and accommodation could remain firm in the quarters ahead with tight certificate of entitlement (COE) quotas for cars and strong demand for rental housing.
See also: MAS set to hold monetary policy as inflation persists
On this, MAS and MTI expect MAS core inflation to remain elevated in the next few months although it will remain on a “broad moderating path” before slowing more discernibly in 2H2023.
“For 2023 as a whole, headline and core inflation are projected to average 5.5% – 6.5% and 3.5% –4.5%, respectively. Excluding the transitory effects of the 1%-point increase in the GST to 8%, headline and core inflation are expected to come in at 4.5% – 5.5% and 2.5% – 3.5%, respectively,” says MAS and MTI.
“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,” they add.
See also: Singapore's headline inflation rebounds to 3.7% y-o-y; core inflation up to 3.3% y-o-y in December
Analysts say…
While March’s inflation figures remained in line with OCBC Bank’s chief economist & head of treasury research & strategy, Selena Ling’s expectations, Ling says it may be necessary to remain “watchful” on the inflation front, especially for core inflation.
In her note, Ling highlights that food inflation remains elevated on a y-o-y basis that could be expensive for the “man in the street” with grocery bills and prices for prepared meals remaining sensitive to raw ingredient costs and operating costs.
In the coming months, Ling expects Singapore’s headline and core inflation to ease below the 5% y-o-y handle; core inflation is expected to dip below the 4% y-o-y handle in the 2H2023.
UOB’s senior economist Alvin Liew is keeping his forecasts unchanged for 2023, where headline inflation will average 5.0% and core inflation to average at 4.0%.
“Excluding the 2023 GST impact, we expect headline inflation to average 4.0% and core inflation to average 3.0% in 2023, both still above the ‘standard’ 2% objective,” he says.
Liew adds that he sees that the MAS’s tightening cycle to have ended and that the central bank will maintain this “pause” at its upcoming meeting in October with no change to the appreciation slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band (which he estimates at +1.5%), no change to the width of the policy band and the level at which the policy mid-point is centred.
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“Admittedly, there is a long pause between now and the October monetary policy statement (MPS). If there is another off-cycle announcement during this period, we think it will likely be due to a sudden worsening in external conditions leading to a sharp downgrade in growth outlook,” he says.
“Under those circumstances, any off-cycle measures will likely mean loosening/easing of monetary policy measures. That is not our base case for now,” he adds.
RHB Group Research’s senior economist Barnabas Gan is expecting Singapore’s inflation momentum to ease further going into 2023.
In his report, the economist anticipates inflation momentum to decline to 0.1% to 0.2% m-o-m in 4Q2023, in line with the long-term averages over 2010 to 2019.
“We note that supply-push inflation drivers have softened materially; easing supply chain frictions amid moderating commodity prices should persist into end 2023. Across Asia-10, inflation has declined to 0.5% y-o-y in March 2023, the slowest in 18 months, whilst inflation momentum declined for the second straight month,” he writes.
“Meanwhile, key commodity price benchmarks, including Brent (March: -32.1% y-o-y), Food and Agriculture Organization (FAO) Food (March: -20.5% y-o-y), Natural Gas (March: -52.9% y-o-y) and Copper (March: -13.7% y-o-y) have all seen year-on-year declines since the start of 2023,” he adds.
Beyond easing supply-push inflation, Gan also sees demand-pull inflation slowing in the near-term, with a “magnified” risk of Singapore going into a technical recession in 1H2023.
“Singapore’s GDP has clocked a -0.7% q-o-q seasonally adjusted print in 1Q2023 at -0.7%, the first sub-zero print since 2Q2022. Our proprietary leading GDP model also suggests that growth will slow in 2Q2023, on the back of headwinds expected in Singapore’s externally-facing industries. Nonetheless, we maintain our view for the GDP growth momentum to improve in 2H2023,” says Gan.
To this end, he has kept his headline and core inflation forecast both at 4.0% y-o-y in 2023.
“Our view that core inflation will remain above 5.0% in 1Q2023 has materialised, and we continue to see declining momentum into 2Q2023 – 4Q2023 to around 2.5% at end-year,” he says.
“Our commodity forecasts for Brent and Crude Palm Oil are US$88 ($117.84)/bbl (2022 average: US$99.8/bbl) and MYR3,900 ($1,174.52)/MT (2022 average: MYR5,100/MT), and this should guide import prices lower in the year ahead,” he adds.
