(Singapore 14 April 2023)Singapore’s Core Inflation rose to 5.5% y-o-y in January–February 2023 from 5.1% in Q4 2022, but is expected to ease materially by the end of 2023, Monetary Authority of Singapore said today. The step-up reflected in part the increase in the GST rate from January and in tobacco duties from February. Services inflation also remained firm amid the ongoing pass-through of elevated business costs, MAS said. However, this was partially offset by lower electricity & gas price inflation following the decline in global oil prices. CPI-All Items inflation edged down to 6.5% y-o-y in January–February 2023, from 6.6% in Q4 2022, as lower private transport inflation offset higher core inflation. MAS officials say that the MAS Core Inflation will stay elevated in the next few months, as accumulated business costs continue to feed through to consumer prices. However, it is expected to slow more discernibly in the second half of this year.
Barring fresh shocks to global supply, Singapore’s imported inflation, which is already negative, should fall further alongside lower commodity prices and the stronger Singapore dollar nominal effective exchange rate or S$NEER. Domestic wage growth should also ease as labour demand moderates, especially in sectors more exposed to international trade and finance. For 2023 as a whole, MAS Core Inflation is expected to average 3.5–4.5%. CPI-All Items inflation is forecast to come in higher at 5.5–6.5%, reflecting the tight supply of COEs and firm accommodation costs. Excluding the effects of the GST increase, core inflation is projected to average 2.5–3.5%, and headline inflation 4.5–5.5%. MAS Core Inflation is projected to reach around 2.5% y-o-y by the end of 2023. When the impact of the GST increase is excluded, core inflation would be even lower, and closer to the historical average. MAS says that there are both upside and downside risks to inflation. Fresh shocks to global commodity prices could impart additional inflationary pressures. However, a sharper-than-expected downturn in the advanced economies could induce a general easing of inflationary pressures. Singapore’s GDP growth is projected to be below trend this year. With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated. While inflation is still elevated, MAS’ five successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’s monetary policy tightening are still working through the economy and should dampen inflation further. MAS has assessed that the current appreciating path of the S$NEER policy band is sufficiently tight and appropriate for securing medium-term price stability. MAS says it will remain vigilant over developments in the economy and financial markets, amid heightened uncertainty on both inflation and growth.