Singapore experienced a further decrease in core inflation, dropping to 3.8 percent year-on-year in July, which marks the lowest point over a year. The decrease from June’s 4.2 percent can be attributed to a reduced rise in food expenses and a decline in electricity and gas charges. The Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) announced this today, explaining the factors behind the decline.
Singapore’s inflation has been on a downward trajectory
Before the current inflation decline in Singapore, the last instance of core inflation being below this level was recorded in May 2022 at 3.6 percent. Earlier in the year, core inflation had surged to a 14-year peak of 5.5 percent in both January and February, after which it followed a downward trajectory in the subsequent months. It’s important to note that core inflation excludes accommodation and private transport costs.
In the broader context, overall inflation also experienced a drop to 4.1 percent year-on-year in July, compared to the previous month’s 4.5 percent. The MTI and the MAS highlighted that this decline could be attributed to reduced private transport inflation and decreased core inflation.
In July, the food inflation rate decelerated to 5.3 percent, primarily due to a more moderate increase in the prices of prepared meals and uncooked food items. The decline in electricity and gas expenses can be attributed to decreased tariffs compared to the previous year. Specifically, for households, the regulated electricity tariff, including Goods and Services Tax (GST), exhibited a sharper decrease of 7.2 percent in the third quarter of this year, as opposed to the 0.9 percent reduction in the previous quarter in Singapore.
For households, gas tariffs, including GST, observed a decline of 4.2 percent in the third quarter, a noteworthy contrast to the 1.0 percent increase seen in the preceding quarter. The retail and other goods inflation rate slightly lowered to 2.6 percent, driven by a more modest rise in clothing and footwear prices.
Services inflation remained relatively stable at 3.6 percent, as the slight moderation in the cost of outpatient services and a decrease in airfares were counterbalanced by a more substantial increase in holiday expenses.
Inflation expected to moderate throughout 2023
MAS and MTI project that the Singapore core inflation will continue to moderate in the upcoming months due to sustained low imported costs compared to the previous year and the gradual alleviation of pressures in the domestic labor market.
For the entirety of 2023, it is anticipated that headline inflation will average between 4.5 and 5.5 percent, while core inflation is expected to fall within the range of 3.5 to 4.5 percent. When factoring out the transient impacts of the one percentage point rise in GST, the forecasted headline and core inflation figures are projected to range from 3.5 to 4.5 percent and 2.5 to 3.5 percent, respectively.
The challenges in the global supply chain have been considerably alleviated, and energy and food commodity prices remain lower than their levels from a year ago. Notably, there has been a reduction in consumer price inflation among Singapore’s key trading partners.
On the domestic front, unit labor costs are expected to continue to rise in the short term, albeit slower. Businesses are likely to pass on increased labor costs to consumer prices. Still, this adjustment is expected to occur more gradually due to the deceleration in domestic economic activity.
With the increase in the Certificate of Entitlement (COE) quota and the escalation in available housing units for rent, inflation in private transport and accommodation is anticipated to moderate throughout the year.
MAS and MTI also pointed out that there remain potential upward risks, including the possibility of new disruptions to global food commodity prices and a more prolonged tightness in the domestic labor market. Simultaneously, there are downside risks, such as the chance of a more rapid deceleration in the global economy, which could lead to a general reduction in inflationary pressures.
