Economists expect Singapore inflation to keep slowing in 2023 as July headline, core figures dip

ECONOMISTS agree that the pace of inflation will continue to slow this year, after Singapore’s headline and core inflation fell in July to their lowest since H1 2022, going by data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) on Wednesday (Aug 23).

Headline inflation for the month dipped to 4.1 per cent year on year from June’s 4.5 per cent. This was slightly lower than the median 4.2 per cent forecast by private-sector economists in a Bloomberg poll. The dip was the result of lower private transport inflation and lower core inflation.

Core inflation, which excludes accommodation and private transport, slipped to 3.8 per cent on the year in July, from 4.2 per cent in the preceding month. It matched economists’ median estimate, and has been falling since February 2023’s 14-year high of 5.5 per cent. July’s decline was largely caused by a smaller increase in food prices, as well as a fall in electricity and gas costs.

The official full-year inflation estimates remained unchanged, with MAS and MTI largely maintaining their inflation outlook. Bank of America economists Faiz Nagutha and Ang Kai Wei noted two subtle changes, compared to the previous report.

“First, MAS and MTI previously characterised global supply chain frictions and energy and food commodity prices as having ‘moderated’,” they said. “Frictions are now seen as ‘largely eased’, but commodity prices were described as remaining ‘below year-ago levels’, a sign that policymakers are watching the recent increase in prices more closely.

“Second, it replaced ‘advanced economies’ with ‘global economy’ as a source of downside risk for inflation, clearly a nod to the renewed weakness in the Chinese economy.”

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RHB senior economist Barnabas Gan noted the possibility of sticky prices in Q3, triggered by improving global economic dynamics, potential elevated agricultural prices led by El Nino, and raised oil prices due to cuts in oil supplies by Russia and the Organization of the Petroleum Exporting Countries.

However, he also flagged that year on year, import prices have contracted for six straight months. Inflation will likely decelerate further in H2, he said.

Economists highlighted that increases in certificate of entitlement quotas and housing rental supply domestically should limit accommodation and private transport inflation for the rest of the year.

DBS economist Chua Han Teng said: “While inflation is still high versus the pre-pandemic average, at least price pressures are moderating and inflation is less acute than last year – to consumers’ relief.”

UOB, RHB and OCBC maintained their full-year inflation forecasts. On its 4.3 per cent headline inflation and 4 per cent core inflation estimates, OCBC chief economist Selena Ling said: “While this is a sharp pullback from the 2022 headline CPI print of 6.1 per cent year on year, the core inflationary pressures remain stickier compared to 2022’s reading of 4.1 per cent year on year.”

Maybank has recently lowered its 2023 full-year headline inflation forecast to 4.8 per cent, from 5.1 per cent previously. Its core inflation forecast is now 4.2 per cent, from 4.3 previously.

Maybank economists Chua Hak Bin and Brian Lee, as well as DBS’ Chua and Ling, believe that core inflation for end-2023 should meet the 2.5 per cent to 3 per cent range, announced by MAS managing director Ravi Menon on Jul 5.

Economists agreed that MAS will likely stand pat on monetary policy at its October meeting.

UOB senior economist Alvin Liew noted that it is “also too soon to expect monetary policy to reverse course”, as inflation, while easing, “likely remains some ways above official objective”.

Any off-cycle announcement before October – which is not UOB’s base case – would likely be due to “a sudden worsening in external conditions leading to a sharp growth downgrade”, prompting a shift to be more accommodative, rather than further tightening, he said.

On a month-on-month basis, headline inflation was down 0.2 per cent in July, due to lower accommodation and private transport costs. Core inflation, however, nudged up 0.2 per cent, largely due to an increase in the costs of services and food.

Key CPI categories

On the year, lower inflation was recorded for most categories in July, with electricity and gas prices registering a decrease due to lower tariffs compared to a year ago.

Electricity costs fell for the first time since June 2021, while gas costs fell for the fourth consecutive month, noted Maybank’s duo. Month on month, however, both subcomponents increased by 0.6 per cent, as utilities group SP hiked household electricity and gas tariffs in the third quarter. 

Year on year, private transport inflation declined in July from June, due to slower rises in car prices.

Food inflation eased, as the pace of increase in the prices of prepared meals and non-cooked food moderated.

“Global food prices as measured by the UN FAO Food Price Index rebounded 1.3 per cent month-on-month but remain 16.6 per cent lower than a year ago in July,” said Maybank’s Chua and Lee.

Inflation in retail and other goods edged down, on the back of a smaller increase in the prices of clothing and footwear.

In contrast, services inflation remained broadly unchanged as a smaller increase in the cost of outpatient services and a decline in airfares were offset by a larger increase in holiday expenses. 

Accommodation was the only category hit by higher inflation last month, due to an increase in service and conservancy charges from the year-ago period.