Singapore inflation rate: Where to next as core inflation drops for the first time in 8 months in October?
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Price pressures in Singapore eased in October, the first decline since February 2022, driven by smaller increases in prices of energy and retail. According to the Monetary Authority of Singapore (MAS), core inflation reached an annual rate of 5.1% in October, cooling from 5.3% in September and matching with the rate in August.
Headline inflation also pulled back to 6.7% in October, from 7.5% in August and September.
With major economies set to slow next year, supply constraints are projected to keep commodity prices elevated. Additionally, the US Federal Reserve (Fed) has indicated it could slow the pace of interest rate hikes. What is the outlook for Singapore’s inflation rate?
What is inflation and how is it measured in Singapore?
Inflation can be defined as a steady rise in product and service prices over a specific time frame. Price increases in a basket of chosen goods and services are typically expressed as percentage increases. Additionally, it reflects the decline in the purchasing power of money.
A decline in purchasing power can curtail economic growth.
Singapore’s Department of Statistics calculates the monthly Consumer Price Index (CPI) inflation for all items. The CPI only covers consumption expenditure by resident households – either Singapore citizens or permanent residents.
The CPI basket contains 6,800 brands, classified into 10 main expenditure divisions as follows:
Clothing and footwear
Housing and utilities
Household durables and services
Recreation and culture
Miscellaneous goods and services
The total number of outlets selected for pricing is about 4,200.
Singapore’s central bank, the MAS, measures core inflation, which excludes accommodation and private transport.
The MAS does not set an explicit inflation target. It believes core inflation of less than 2% is consistent with overall price stability in the economy.
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Singapore inflation rate: Historical context
Looking at Singapore’s inflation rate history, MAS core inflation and CPI‐all items inflation recorded at -0.2% for overall 2020 on compared to 1.0% and 0.6% in 2019. Lower food inflation and a decline in services costs during the Covid-19 pandemic had caused a decline in prices, or deflation.
Inflation started to climb in 2021 amid the rising cost of imports and labour, and recovery in economic activity with the gradual lifting of Covid-19 restrictions.
MAS core inflation crossed the 2% mark in December 2021, up from -0.2% in January 2021. The all-item inflation rate in Singapore averaged 2.3% year-over-year (YOY) in 2021, while MAS core inflation averaged 0.9%, according to Singapore Department of Statistics data.
Singapore’s inflation rate continued to pick up in 2022. In January, MAS core inflation gained 2.4%, driven by higher inflation for food and electricity as well as gas. However, all-items inflation remained unchanged at 4% from December 2021.
The pace of inflation quickened in the second quarter as surging global commodity prices and renewed supply chain disruptions caused by Russia’s invasion of Ukraine intensified imported inflationary pressures.
On the domestic front, persistently tight labour markets supported a firm pace of wage increases, contributing to the high inflation rate. CPI-All Items advanced to 5.4% in March, while MAS core inflation hit 2.9%, compared to 4.3% and 2.2%, respectively, in February.
The inflation rate continued to climb in Q3, with MAS core inflation hitting 5.3% in September, from 5.1% in August, the steepest rise since November 2008. CPI all-Items inflation remained at a 14-year high of 7.5% in September, unchanged from August. Transportation costs climbed at the fastest rate, increasing 19% YOY, according to data from Singapore’s Department of Statistics.
In its October’s monetary policy statement, the MAS attributed rising inflation to increased import and domestic costs as a result of strong demand. Rising global energy and agriculture costs pushed up electricity and gas.
In October, the inflation rate in Singapore declined, with MAS core inflation returning to the August level of 5.1%. CPI-All Items was at 6.7%.
Jefferies’ analysts Sean Darby, Kenneth Chan and Equity Research Team wrote in a note on 22 November:
The MAS tightening monetary policy
Unlike other central banks, the MAS does not use interest rates to keep inflation in check. Instead, it manages the Singapore dollar (SGD) movement against a trade-weighted basket of currencies of the country’s main trading partners, which the MAS does not disclose, through a complex mixed of parameters.
This is because Singapore’s small and open economy depends on imports to meet demand, meaning that the exchange rate has more impact on inflation than interest rates. The Southeast Asian nation spends roughly 40 cents of every dollar on imports, according to the MAS. The country’s gross exports and imports of goods and services account for more than 300% of its gross domestic products (GDP).
The central bank establishes a defined ‘policy band’ within which the Singapore dollar or Sing appreciates or depreciates against a basket of currencies. When necessary, the MAS will step in to ensure the SGD does not deviate from the policy band.
Nicholas Mappa, Senior Economist at ING Group, wrote on 23 November:
Since April 2022, Singapore’s central bank has adjusted the volatility of foreign exchange market twice – in July and October – while maintaining the rate of the SGD appreciation at 1.5%.
Factors driving Singapore inflation
Let’s examine what factors contributed to the rising inflation before looking at analysts’ Singapore inflation predictions.
Imported inflation to remain elevated
According to the MAS, the rise in prices of discretionary goods and services amid robust demand aided the pass-through of higher imported and domestic costs. Inflation in electricity and gas, as well as non-cooked food, also rose, reflecting the effects of a YOY increase.
The MAS expected imported inflation across a range of goods and services to remain significant for some time.
Tight labour market to push inflation rate
Lingering tight labour markets have contributed to fuelling inflation from wages. In September, Singapore’s unemployment rate dropped to 2%, down from 2.2% in March and 2.6% a year earlier. As the economy has improved, businesses are competing for talent by offering higher wages.
For a long time, the country has relied on foreign talent, and the slow return of foreign workers has tightened the labour market even more. SEB Group estimated that while non-resident labour flows rose to about 1.306 million in 2022, they remained well below the 1.427 million recorded in 2019.
MAS monetary tightening boost SGD appreciation
Singapore dollar to US dollar live chart
The Singapore dollar has so far bucked the depreciation trend in global currencies as the Fed’s aggressive rate hike strengthened the US dollar (USD). Analysts expected that the MAS’ recent aggressive tightening could boost SGD against most of its trading partners’ currency.
The currency pair beat performance of its Asian peers, including the US dollar to Japanese yen (USD/JPY), which has advanced 22.16% YOY, and the US dollar to Chinese yuan (USD/CNY), which has climbed 12.64%.
The Singapore dollar, however, has strengthened against the euro. As of 29 November, the EUR/SGD exchange rate was 1.42, falling 7.93% YOY.
Singapore inflation rate forecast: 2022, 2023 and beyond
The Monetary Authority of Singapore predicted core inflation to average 4% in 2022 while CPI-All Items inflation was expected at around 6%.
The Singapore inflation rate forecast for 2023 was expected to average 3.5% to 4.5%, considering all factors including GST increase, according to the MAS. The central bank saw headline inflation at 5.5% to 6.5% in 2023.
Economists and analysts polled in the MAS’ Survey of Professional Forecasters in September raised their core inflation forecast for 2022 to 3.8%, from 3.4% in June. They also increased the CPI inflation estimate for 2022 to 5.7% from the previous 5%.
As of 16 November, ING Group’s Singapore inflation forecast expected the pace of price rise to reach 5.7% in Q4 2022, before gradually easing to 3.5% by Q4 2023. Overall, Singapore expected inflation was projected to average 4% in 2023, decelerating to 3.4% in 2024 and 3% in 2025, based on the Dutch lender’s estimates.
Bank of America (BofA) Global Research on 23 November Singapore’s inflation predictions projected MAS core inflation and headline inflation to average 4.2% and 5.1%, respectively.
Mohamed Faiz Nagutha, Asia and ASEAN economist at BofA’s Merril Lynch Singapore, wrote on 23 November:
Final thoughts on Singapore inflation
Analysts mentioned in this article expected inflation in Singapore to remain elevated in the short term, before gradually decelerating in 2023 onwards.
When researching Singapore’s inflation forecast, keep in mind that analysts’ estimates can be inaccurate. They should not be used to replace your own research. Always do your own research before trading. And never trade money that you cannot afford to lose.
What is the current inflation rate in Singapore?
The Monetary Authority Singapore (MAS) core inflation stood at 5.1% and the Consumer Prices Index (CPI) All-Items grew at an annual rate of 6.7% in October.
Has inflation been going up or down in Singapore?
Singapore’s inflation rate has cooled in October, but remains above the central bank’s benchmark of 2% core inflation.
Why is inflation so high right now?
Inflation in Singapore is currently high due to rising import and domestic costs, as well as a tight labour market, which fuelled higher wage growth.