Dial-back in headline inflation to 6.3% in February; core holds steady at 5.5%

SINGAPORE’S headline inflation dipped in February, while core inflation was unchanged from the previous month, data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) showed on Thursday (Mar 23). Both, however, were lower than economist estimates.

In February, headline inflation slipped to 6.3 per cent, from 6.6 per cent in the previous month, mainly due to lower private-transport inflation. This marked a nine-month low, due to slowing private transport costs from last year’s high base for certificate of entitlement premiums, noted Maybank economists Chua Hak Bin and Lee Ju Ye.

Core inflation, which excludes accommodation and private transport, remained unchanged from January’s 5.5 per cent – the highest since November 2008. This came as lower services inflation was broadly offset by higher inflation for retail and other goods, as well as electricity and gas. 

Private-sector economists expected a marginally higher rate of headline inflation at 6.4 per cent, and a higher rate of 5.8 per cent for core inflation, going by median estimates in a Bloomberg poll.

Core inflation was “surprising stable” in February, more clearly undershooting MAS’ projections, said Barclays senior regional economist Brian Tan.

The bank cut its full-year 2023 core inflation forecast to 3.9 per cent from 4.2 per cent previously, representing a slight decline from 2022’s 4.1 per cent average.

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DBS senior economist Irvin Seah said he believes that headline inflation, distorted by accommodation inflation, is underestimating real inflationary pressure.

“The GST (goods and services tax) effect is still in the system, but masked by the decline in the accommodation index, which is irrelevant to the majority of homeowners in Singapore and also not reflective of the actual rental situation,” he said.

Unlike in the previous report, where the authorities expected prices of energy commodities to remain elevated, they noted that prices have declined recently. However, they added that regional inflation will remain supported by resilient growth in Asia.

Tan noted they also “appeared to incorporate a softer tone on imported inflation”, highlighting that the latest statement notes that “non-oil import prices could therefore remain relatively firm for some time”. This is in contrast to the previous month’s comment that “imported inflation is expected to remain firm for some time.”

MAS and MTI did not discuss the domestic outlook for the cost of utilities in the latest inflation release. Previously, they said utilities prices will likely remain elevated despite coming down from their peak in Q3 2022.

Domestically, unit labour costs are still projected to rise further – though in the latest report, MAS and MTI no longer note that this will happen alongside robust wage growth.

The authorities maintained their inflation outlook for 2023. February’s headline inflation remained within the official range of between 5.5 and 6.5 per cent. Core inflation for the month remained higher than the official full-year projection of 3.5 to 4.5 per cent.

Overall, consumer price index was mixed across categories in February.

Electricity and gas inflation was up at 12.1 per cent, from 11.5 per cent in January, due to a larger increase in electricity costs.

Also higher was retail and other goods, which was up at 3.8 per cent, against the preceding month’s 3.3 per cent. This was on account of the step-up in tobacco excise duty and a faster pace of increase in the prices of personal-care products and recreational and cultural goods.

In contrast, private transport inflation, at 12.1 per cent, was lower than the 14.3 per cent recorded in January. The slowdown was the result of a smaller increase in car prices and a decline in petrol prices.

Services inflation eased to 3.9 per cent, from 4.2 per cent in the month before, on the back of lower airfares.

Accommodation inflation edged down to 4.9 per cent, from 5 per cent previously, as housing rents rose more slowly.

On the bread and butter front, food inflation was unchanged at 8.1 per cent, as a steeper increase in non-cooked food prices was offset by a smaller increase in the prices of prepared meals.

Seah warned that the high food inflation is disproportionately hurting lower-income households, where food accounts for a large chunk of consumption.

Excepting the changes above, MAS and MTI maintained their outlook from the previous month’s release, forecasting continued elevated global food commodities prices and high core inflation in major advanced economies.

They still expect that amid resilient demand, businesses will continue to pass on accumulated import, labour and other costs to consumers. They noted that car and accommodation price increases will stay firm.

“Taking into account all factors, MAS Core Inflation is expected to stay above 5 per cent year on year in Q1 2023, as previously projected,” they said.

The economists were mixed on monetary policy tightening at the MAS’ next scheduled meeting in April. Tan and Seah believe that no tightening will occur, while the Maybank team expects a re-centring to dampen price pressures.

But the duo added: “The recent global banking turmoil may, however, exert a deflationary impact on growth and prices.”

“Inflation may fall a lot more quickly in the coming quarters, as tightening credit conditions and rising short-term interest rates dampen investment and consumer spending.”