Singapore core inflation rises to 4.8% in July but official full-year forecasts unchanged
Elysia Tan
AS SINGAPORE’S core inflation rose to a 13-year high of 4.8 per cent in July, official expectations for when price increases will start to ease have been pushed back later in 2022, even as full-year forecast ranges were left unchanged.
The July figure was a hair above economists’ expectations of 4.7 per cent in a Bloomberg poll, and up from 4.4 per cent in June, according to Department of Statistics consumer price index (CPI) figures on Tuesday (Aug 23).
Headline inflation – which includes accommodation and private transport costs – was in line with economists’ expectations at 7 per cent, up from 6.7 per cent in June and representing another multi-year high.
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, before it begins to ease towards the end of the year” – in contrast to last month’s report, where they expected it to “peak in Q3”.
But they maintained their full-year forecast ranges of 3 to 4 per cent for core inflation and 5 to 6 per cent for headline inflation, having just raised these in July.
RHB senior economist Barnabas Gan noted that sequential growth in both all-items and core CPI decelerated in July, with the month-on-month change for all-items CPI slowing to a 3-month low of 0.2 per cent. He expects headline inflation to remain at around 7 per cent in the coming months before “dissipating towards the 5 per cent level” in the fourth quarter.
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Having earlier expected the MAS to maintain its stance at the next policy meeting in October, Maybank analysts Chua Hak Bin and Lee Ju Ye now expect policy to be tightened, bringing them in line with other economists who maintained their policy expectations in the wake of July’s inflation figures.
But views were mixed on the October decision. RHB and UOB expect a steepening of the Singapore dollar nominal effective exchange rate (S$NEER) slope, while Maybank predicts that the S$NEER will be re-centred to the prevailing level then, while Barclays expects both.
Opinions also differed on whether an earlier off-cycle tightening might occur. Barclays economist Brian Tan does not rule out such tightening “even sooner” than October, noting that July’s core inflation exceeded the 4 to 4.5 per cent range that MAS managing director Ravi Menon had seen as the likely Q3 peak.
But Selena Ling, chief economist and head of treasury research and strategy at OCBC, does not think that July’s higher inflation figures imply that an off-cycle move “is imminent”, as the S$NEER “is fairly well behaved and contained around +1 per cent region above its parity”.
UOB economist Alvin Liew estimates that MAS policy is already in a restrictive setting, and thus does not expect an off-cycle announcement unless there is “an extreme acceleration” in core inflation for August.
OCBC, RHB and UOB maintained their full-year inflation forecasts, with the former 2 banks’ estimates falling within official ranges. UOB’s forecast remains above the official range for core inflation and at the top end of the range for headline inflation.
But following Tuesday’s release, Maybank raised its full-year forecasts to 6 per cent for headline inflation, up from 5.5 per cent previously, and 4 per cent for core inflation, up from 3.5 per cent before. It also hiked its 2023 forecasts to 3.8 per cent for headline inflation, from 3.5 per cent before; and to 3 per cent for core inflation, up from 2.8 per cent.
Barclays maintained its full-year core inflation forecast at 4.2 per cent but now expects this rate to sustain into 2023, up from their previously predicted 4 per cent rate for next year.
The MAS and MTI said that July’s pickup in inflation was led by stronger increases in the prices of food as well as electricity and gas. Electricity and gas costs rose the most, up 24 per cent due to a larger increase in electricity and gas tariffs.
On the bread-and-butter front, food inflation was 6.1 per cent, up from 5.4 per cent in June, pushed up by price increases for both cooked and non-cooked food.
Apart from higher core inflation, private transport and accommodation inflation also intensified in July – the former due to a stronger pickup in car prices, and the latter as housing rents rose at a faster pace.
Among the categories in MAS and MTI’s release, only retail and other goods bucked the trend. Their prices rose at a slower rate of 2.8 per cent, compared to 3.1 per cent in June.
Except for the change in when core inflation might ease, the MAS and MTI largely maintained their outlook from the previous month’s release, 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, MAS and MTI said. They added that car and accommodation cost increases are also likely to stay firm for the rest of the year.
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