Singapore's core inflation cools more than expected

Good sign: A view of the Jewel Changi Airport in the city-state. Core inflation is likely to drift down towards 2.5% by the fourth quarter, opening the door for MAS to ease policy at its October meeting. — Reuters

SINGAPORE: Singapore’s core inflation eased more than expected in March as prices of food and services rose at a slower pace, with overall inflation dropping to a 2½-year low.

Core inflation – which excludes private accommodation and transport costs to better represent the expenses of Singapore households – fell to 3.1% year on year in March.

This was after Chinese New Year prices sent core inflation jumping to 3.6% in February, from 3.1% in January.

Compared with February, core inflation dropped 0.2%, the Trade and Industry Ministry (MTI) and the Monetary Authority of Singapore (MAS) said in their joint report.

Overall inflation slowed year on year to 2.7%, from 3.4% in February. This is the lowest since September 2021.

The slowdown was largely due to a decline in private transport costs, in addition to lower core inflation.

Month-on-month, overall inflation dipped 0.1%.

Both inflation indicators came in well below market forecasts.

Analysts polled by Bloomberg had tipped core inflation to come in at 3.5% and overall inflation at 3.1%.

Maybank economist Chua Hak Bin noted that there was no discernible Taylor Swift shock to prices as airfares fell and holiday expenses rose at a slower pace.

Retail and other goods inflation also eased.

The American singer and songwriter held The Eras Tour concerts in Singapore over six nights from March 2 to 9, serenading more than 300,000 fans, including those from overseas.

“Core inflation has resumed its gradual downward trend after the blip during the festive Lunar New Year month.

“We expect core inflation to drift down towards 2.5% by the fourth quarter, opening the door for MAS to ease policy at the October meeting,” Chua said.

Earlier in April, MAS kept unchanged its monetary policy stance aimed at strengthening the trade-weighted Singapore dollar to combat inflationary pressures.

In March, private transport costs fell as car prices declined in tandem with lower premiums for certificate of entitlements (COEs). Anyone who wishes to register for a new vehicle in Singapore must first obtain a COE.

Food inflation eased, mainly due to a smaller increase in the prices of non-cooked food, while services inflation moderated as airfares fell and holiday expenses rose at a slower pace.

Retail and other goods inflation eased due to a decline in the prices of clothing and footwear, and a more modest rate of increase in the prices of alcoholic drinks and tobacco.

Accommodation inflation edged down due to a smaller increase in housing rents.

Electricity and gas inflation eased as electricity costs rose at a more moderate pace.

Edward Lee, chief economist and head of foreign exchange, Asean and South Asia at Standard Chartered Bank, cautioned that most of the moderation in core inflation from February was from food prices, which might be volatile.

There could also be more cost pass-through of the goods and services tax hike to food prices in the second half of this year.

DBS Bank economist Chua Han Teng expects core inflation to ease and average lower in 2024 compared with the 4.2% in 2023.

“Factors supporting our view include imported price pressures due to manageable global commodity prices and ongoing Singapore dollar strength, as well as easing domestic cost pass-through with the transitory upside impact of the goods and services tax hike already fading,” he said.

MTI and MAS on April 23 maintained their estimates for both core and overall inflation in 2024 at 2.5% to 3.5%.

Core inflation is expected to stay on a gradual moderating trend over the rest of the year as import cost pressures continue to decline and tightness in the domestic labour market eases, they said.

Although crude oil prices have risen in recent weeks, global prices for most food commodities, as well as intermediate and final manufactured goods, have continued to decline, they added.

Inflation for services associated with overseas travel should moderate further over the course of the year as supply conditions in hospitality sectors around the world improve, said MTI and MAS.

The gradually strengthening Singapore-dollar trade-weighted exchange rate should also continue to temper Singapore’s imported inflation in the months ahead, they said.

On the domestic front, increases in unit labour costs have slowed in tandem with the cooling labour market.

Businesses are likely to continue passing through the earlier increases in labour and other business costs to consumer prices, albeit at a reduced pace.

Private transport inflation is also expected to be lower compared with 2023, with a larger projected COE supply in 2024.

Accommodation inflation should also continue to ease as the supply of housing units available for rental increases.

But risks to the inflation outlook remain, said MTI and MAS.

Fresh geopolitical shocks and adverse weather events around the world could put upward pressure on global energy and food commodity prices, as well as shipping costs.

Domestically, a stronger-than-expected labour market could also lead to a re-acceleration in wage growth.

Conversely, an unexpected weakening in the global economy could induce a greater easing of cost and price pressures, they warned. — The Straits Times/ANN

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