Singapore core inflation climbs to 5.1% in August; prices to stay elevated in coming months

WITH Singapore’s core inflation climbing to yet another multi-year high of 5.1 per cent in August, officials now expect price increases to remain elevated in the months ahead, even as they stuck to their forecast ranges for the full year.

The August figure was just above economists’ expectations of 5 per cent, a Bloomberg poll found; and up from 4.8 per cent in July, figures from the Department of Statistics released on Friday (Sep 23) showed.

Headline inflation – which includes accommodation and private transport costs – jumped to 7.5 per cent in August, up from 7 per cent in July, on higher private transport inflation. This was slightly higher than economists’ expectations of 7.2 per cent.

The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said in a joint statement that core inflation is now “projected to stay elevated over the next few months” – in contrast to last month’s report, where they expected it to “ease towards the end of the year”.

But they still maintained their full-year forecast ranges of 3-4 per cent for core inflation and 5-6 per cent for headline inflation, which were last raised in July.

“This may imply that core inflation may peak later than initially expected, which may not come as a total surprise since major central banks like the FOMC (Federal Open Market Committee) are already signalling the need to continue to front load aggressive monetary policy tightening as inflation may stay elevated for longer,” said OCBC chief economist Selena Ling.

The change in wording from the previous month’s report could signal that the MAS may be reconsidering its full-year core inflation forecast, said Barclays economist Brian Tan, who added that Friday’s figures provide evidence that the 3-4 per cent range is “too low”.

Core inflation has averaged 4.9 per cent year on year from July to August, exceeding the 4-5 per cent range that MAS previously said would likely be the Q3 peak, noted Tan. For core inflation to average 4.5 per cent year-on- year in the third quarter, September’s print would have to moderate sharply to 3.8 per cent – which while still possible, is unlikely to be the case, he added.

Following Friday’s release, Maybank economists Chua Hak Bin and Lee Ju Ye expect MAS to hike its full-year forecasts to 3.5-4.5 per cent for core inflation and 5.5-6.5 per cent for headline inflation. UOB senior economist Alvin Liew, too, predicts that the official forecast will soon be “revised higher”.

While private-sector economists maintained their expectations for further monetary policy tightening at the next policy meeting, views were mixed on the October decision. RHB and Barclays expect MAS to steepen the Singapore dollar nominal effective exchange rate (S$NEER) slope, as well as to recentre the policy band upward for the third time this year.

In contrast, Maybank is not predicting a “double tightening” in October due to the rising likelihood that Singapore will enter a technical recession. It predicts that the S$NEER will be recentred to the prevailing level then.

UOB expects a steepening of the S$NEER slope, but did not rule out the possibility that the S$NEER could be recentred upward as well.

RHB senior economist Barnabas Gan maintained his full-year inflation forecasts, as did OCBC and Barclays. But while RHB and OCBC’s estimates fall within official ranges, Barclays’ forecast was a nudge above the official ranges for both core and headline inflation.

Maybank raised its full-year forecasts to 4.2 per cent for core inflation, from 4 per cent; and 6.2 per cent for headline inflation, from 6 per cent. Meanwhile, UOB maintained its forecasts for headline inflation, but hiked its core inflation forecast to 4.2 per cent, exceeding official estimates.

The pick-up in core consumer prices was mainly driven by larger increases in services and food prices, said MAS and MTI in the joint statement.

Food inflation edged up by 6.4 per cent in August, up from 6.1 per cent in July, pushed up by steeper price increases for food services and non-cooked food. Services inflation went up by 3.8 per cent in August, compared to 3.5 per cent the month before, in large part due to a stronger pick-up in holiday expenses.

Apart from higher core inflation, private transport and accommodation inflation also intensified in August. Private transport costs went up by 24.1 per cent from the year before, up from July’s 22.2 per cent increase, largely due to a faster pace of increase in car prices. Accommodation inflation was 4.7 per cent, up from 4.6 per cent before, on larger increases in housing rents.

Retail and other goods inflation edged up 2.9 per cent, from 2.8 per cent the month before, as the prices of clothing and footwear, as well as household durables, rose at a faster rate.

Only electricity and gas inflation bucked the trend – rising at a slightly slower rate of 23.9 per cent, compared to 24 per cent in July, on a smaller increase in gas prices.

MAS and MTI largely maintained their outlook from the previous month’s release, once again noting that although global supply chain frictions have eased slightly and some commodity prices have levelled off, global inflation is likely to stay elevated in the near term.

On the domestic front, the labour market remains tight; and with firm consumer spending, businesses are likely to pass on cost increases to consumer prices, they said.