Singapore's surprise 3.8% headline inflation in Nov prompts higher full-year forecasts
SINGAPORE'S higher-than-expected headline inflation in November has prompted both economists and the authorities to raise their 2021 forecasts, but has not changed the 2022 outlook significantly.
The 3.8 per cent figure exceeded economists' expectations of 3.4 per cent and beat October's previous high of 3.2 per cent, Department of Statistics (Singstat) consumer price index (CPI) figures showed on Thursday (Dec 23).
Despite the surprise, however, November's showing "is still in line with the overall profile" of the inflation outlook, said CIMB Private Banking economist Song Seng Wun. He expects headline inflation to be around 3 to 3.5 per cent for most of the first half of 2022, before coming off in the second half.
Driven by stronger private transport inflation, November's headline inflation was the highest since February 2013, when it was 4.9 per cent.
Core inflation, which excludes accommodation and private transport, edged up to 1.6 per cent, above the 1.5 per cent figure that was both October's reading and economists' median estimate.
The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) raised their full-year estimates, though official forecasts for 2022 did not budge. Economists continue to see a chance that the MAS will further tighten policy settings at its next meeting in April.
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The rise in core inflation mainly reflected higher services inflation, said the MAS and MTI.
Electricity and gas costs also rose more sharply, but the MAS and MTI noted that this was "primarily due to a decline in the number of households on standard price plans for electricity".
This happened after several retailers exited the Open Electricity Market in the face of volatile energy prices, with affected household accounts being transferred to SP Group and generally having to pay more.
Given that this was a one-off effect, it is not clear how much longer high energy costs will persist, said CIMB's Song.
Retail and other goods was the only category to see prices fall, with all other categories seeing higher inflation in November.
With just 1 month of the year left, the MAS and MTI raised the official 2021 full-year forecast to 2.3 per cent for headline inflation, up from "around 2 per cent" before.
This is given "the sharp rise in private transport costs in recent months due to higher COE (certificate of entitlement) premiums", they said.
They also narrowed the full-year core inflation forecast to 0.9 per cent, compared with a previous forecast of "near the upper end of the 0 to 1 per cent".
But they maintained their official forecasts for 2022, with core inflation to be between 1 and 2 per cent, and headline inflation to average 1.5 to 2.5 per cent.
UOB economist Barnabas Gan similarly upgraded his 2021 headline inflation outlook to 2.3 per cent, up from 2.0 per cent previously, but kept his core inflation outlook at 1 per cent. The official revised estimate for headline inflation implies a 3.9 per cent rate in December, he noted.
For 2022, he sees Singapore's inflation outlook as dependent on global commodity prices, with further upside risks from firmer demand for commodities and input materials as economic activity picks up across Asia.
Barclays economist Brian Tan raised his full-year headline inflation forecasts, matching the official estimates for 2021.
He also raised his forecasts for 2022, to 2.1 per cent for core inflation and 3.2 per cent for headline inflation. But the latter "is unlikely to significantly influence the formulation of FX (foreign exchange) policy, which is more focused on core inflation", he added.
November's pick-up in core inflation might reflect some "distortions from non-core items", he said. He noted that the rise in services inflation was mainly due to a faster rise in airfares - but this is still largely imputed using the overall change in all-items CPI, as price data remains insufficient.
"This suggests that the increase in core inflation may have been exaggerated by the sharp increase in the non-core items such as private road transport and accommodation," he said.
Excluding uncooked food, energy, and travel-related components, he estimates that core inflation actually fell to 0.8 per cent in November, from 0.9 per cent in October.
Most Singstat expenditure categories, distinct from the MAS and MTI categories, saw prices rise year on year in November.
The exceptions were clothing and footwear, down 6.6 per cent; communication, down 1.2 per cent; and miscellaneous goods and services, down a marginal 0.1 per cent.
The MAS and MTI's outlook remained largely unchanged from the previous month's release. They expect global inflation to remain elevated for some time, with crude oil prices supported by tight supply conditions and firm demand. Also expected to continue are supply-demand mismatches in various commodities and goods markets, and bottlenecks in global transportation.
At home, the labour market recovery is expected to become more entrenched, and wages will continue to rise at a steady pace.
"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," they said.
Headline inflation is likely to be supported by accommodation inflation, which should stay firm amid construction delays, MAS and MTI added. But private transport inflation is likely to moderate next year, with a slower pace of increase in COE premiums and petrol costs.
Maybank Research analyst Chua Hak Bin noted, however, that the impact of the Omicron Covid-19 variant on inflation "is not clear-cut".
"Renewed lockdowns or delayed reopening could dampen demand and energy prices," he said. "But supply disruptions and lockdowns in key China manufacturing hubs could worsen component shortages and fan inflation."
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