Singapore's headline inflation rose to 4% in December, prompts review of 2022 forecasts

SINGAPORE'S headline inflation rose to 4 per cent in December, exceeding economists' expectations and prompting the authorities to review their 2022 forecasts.

December's figure exceeded economists' expectations of 3.7 per cent, beating November's previous high of 3.8 per cent, the latest consumer price data from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) showed.

Core inflation, which excludes accommodation and private transport, edged up to 2.1 per cent, above the 1.6 per cent figure that was November's reading and exceeding economists' median estimate of 1.8 per cent.

"There remains significant uncertainty surrounding the outlook for inflation in the near term, including from the costs of air travel and commodity prices such as food and oil," said the authorities.

"Given the recent stronger-than-projected inflation outturns, including the sharp upticks in airfares, MAS and MTI are reviewing the current forecast ranges for Consumer Price Index (CPI) all items inflation and MAS core inflation in 2022," they added.

The last time headline inflation crossed the 4 per cent mark was in February 2013. MAS and MTI said December's higher-than-expected headline inflation mainly reflected the pickup in core inflation and higher accommodation inflation.

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They added that the rise in core inflation was driven by an increase in services inflation, mainly due to a steeper increase in airfares which reflected the higher costs of travel on the quarantine-free vaccinated travel lanes.

Services inflation rose to 2.6 per cent in December, up from 1.9 per cent in the previous month. Aside from airfares, the authorities said point-to-point transport services costs, and tuition and other fees, also rose at a faster pace.

With the December figure, full-year core and headline inflation both came in at 0.9 per cent and 2.3 per cent respectively, up from -0.2 per cent for both in 2020, and in line with MAS and MTI's previous forecasts.

Accommodation inflation rose to 3 per cent, up from 2.7 per cent in November, as housing rents increased more rapidly.

Food inflation edged up to 2.1 per cent, from 1.9 per cent in the previous month, as non-cooked food inflation rose, though the inflation of prepared meals remain unchanged.

Electricity and gas inflation climbed to 10.7 percent, compared to the previous month's 10 per cent, which the authorities said was due to a steeper rise in average electricity prices paid by households.

With the pace of increase in car prices and petrol costs easing, private transport inflation bucked the trend, falling to 15.5 per cent, down from 17.9 per cent in November.

Meanwhile, the cost of retail and other goods fell at a slower pace on account of smaller price declines for telecommunication equipment, and clothing and footwear, as well as larger price increases for personal effects, said the authorities.

On the whole, MAS and MTI said labour market recovery is expected to become "more entrenched" with the easing of Covid-19 restrictions and pickup in economic activity.

They noted that wages have increased and are expected to continue to rise at a steady pace as slack in the labour market dissipates.

"As the domestic Covid-19 situation stabilises, consumer demand should strengthen, with the possibility of a greater pass-through of accumulating business costs to consumer prices."