Singapore core inflation hits 4.4% in June, highest level since global financial crisis

SINGAPORE’S core inflation hit 4.4 per cent in June – up from 3.6 per cent in May, and the first time that it has breached the 4.0 per cent handle since end-2008.

Meanwhile, headline inflation – which includes accommodation and private transport costs – surged to 6.7 per cent, from 5.6 per in May, according to figures out on Monday (Jul 25) – another multi-year high.

The latest inflation prints blew past median forecasts in a Bloomberg poll of private-sector analysts. The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) noted in a joint statement: “Inflationary pressures will remain elevated in the months ahead.”

While core inflation should peak in the third quarter, they added: “There remain upside risks to inflation from fresh shocks to global commodity prices, as well as domestic wage pressures.

That comes as the MAS this month raised its full-year core inflation forecasts to between 3.0 per cent and 4.0 per cent in 2022, up from 2.5 per cent to 3.5 per cent before.

The all-items consumer price index (CPI) reading is now expected to fall between 5.0 per cent and 6.0 per cent, compared with an earlier forecast of 4.5 per cent to 5.5 per cent.

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But Barclays economist Brian Tan has now hiked his core inflation forecast to 4.2 per cent in 2022, from 3.5 per cent before — which he noted would bust the official forecast range. He expects core inflation to cool “only slightly” to 4.0 per cent in 2023, up from an earlier projection of 3.0 per cent.

“Our estimates suggest sequential core inflation momentum remains very strong — even after excluding uncooked food, energy and the travel-related components — which suggests it may take some time before price pressures cool off,” Tan wrote in a flash note.

The MAS recently made a shock off-cycle move to tighten monetary policy in mid-July, which it said then was to slow the pace of inflation and “lean against price pressures becoming more persistent”.

Nicholas Mapa, senior economist at ING, said: “Despite delivering a series of tightening measures since late 2021, MAS has struggled to contain stubbornly high inflation ... and today’s inflation reading suggests that the central bank may be called to action again very soon.”

The MAS and MTI noted that June’s higher core inflation “reflected stronger price increases” across services, food, retail and other goods, and electricity and gas, while private transport and accommodation expenses — which are excluded from core CPI — also climbed at a faster pace.

Private transport cost 21.9 per cent more in June than the year before, up from 18.5 per cent in May, on a stronger increase in car prices and petrol costs. Accommodation inflation ticked up to 4.2 per cent, from 4.0 per cent in May, on costlier housing rents.

On the bread-and-butter front, food inflation grew to 5.4 per cent, from 4.5 per cent in May.

Food inflation was driven by a 10.1 per cent jump in the price of meat, as well as an 8.4 per cent rise in the price of fish and seafood, and 6.2 per cent increase in milk, cheese, and eggs.

“Food momentum continued to pick up, mainly driven by soaring chicken prices, in part due to Malaysia’s chicken export ban in May,” noted HSBC economist Yun Liu, though she added that the recent addition of Indonesia as a source of chicken imports is expected to help bring prices down.

Food services costs grew by 5.3 per cent. Hawker food was up by 5.7 per cent, catering services by 5.3 per cent, restaurant food by 4.8 per cent, and fast food by 4.7 per cent.

Services costs rose by 3.4 per cent in June, against 2.6 per cent in May, which was attributed to faster growth in holiday expenses, airfares, and point-to-point transport service costs.

The cost of retail and other goods spiked by 3.1 per cent, compared with 1.8 per cent in May, with the MAS and MTI highlighting pricier medicines, health products, clothes and shoes.

Electricity and gas cost 20.0 per cent more in June than the year before, compared with 19.9 per cent in May, on higher average prices of Open Electricity Market electricity plans.

The MAS and MTI reported that “upward pressures on Singapore’s import prices are expected to persist”, even as a tight domestic labour market, strong wage growth and “firm consumer spending” could see a pass-through of utilities, imported inputs and other costs to consumers.

Still, Liu from HSBC added that, “apart from monitoring where prices go, it is also worth watching the momentum of the economy”, such as second-quarter labour market data slated for release this week.

Separately, the all-items CPI rose 5.2 per cent year on year for general households in the first half of 2022, fresh figures from the Department of Statistics (SingStat) showed. The increase was faster than the 3.1 per cent increase in the 6 months prior.

The increase was sharpest for households in the top 20 per cent of income, who saw CPI grow by 6.0 per cent. Households in the middle 60 per cent felt an increase of 4.9 per cent in consumer prices, while the bottom 20 per cent saw prices up by 4.2 per cent.

SingStat reported that cars, accommodation, food, petrol, electricity and transport services drove inflation across all household groups in the half-year.

Top earners saw the biggest increases in CPI because cars, petrol and other transport “accounted for a bigger share of its expenditure basket” compared with other income groups, SingStat added.

Yet Selena Ling, chief economist at OCBC, called the increase for lower-income households “still very substantial”, especially given the inflation in essentials like food, transport, and housing and utilities.

Despite targeted subsidies and transfers for households in this group, “the impact of inflation may be more challenging as their wage adjustments likely lagged behind during this period”, she said.