ECONOMISTS continue to expect the Monetary Authority of Singapore (MAS) to leave its monetary policy parameters unchanged at its October meeting, after inflation slowed in May.

Singapore’s headline inflation shrank to 5.1 per cent year on year (yoy) from April’s 5.7 per cent, data from MAS and the Ministry of Trade and Industry (MTI) showed on Friday (Jun 23). Core inflation, which excludes accommodation and private transport, fell to 4.7 per cent yoy, from 5 per cent in the preceding month.

The decline in the headline figure, which came in under the median 5.4 per cent forecast by private-sector economists in a Bloomberg poll, was driven by a fall in private transport inflation, as well as lower core inflation. The lower core inflation, which matched economist estimates, was attributed to falls in services inflation and food inflation.

“Today’s CPI (consumer price index) print strengthens our conviction that inflation has shown compelling signs of moderation, warranting the MAS hold in October,” said HSBC economist Yun Liu, adding that the data shows evidence that inflation “has passed its peak”.

DBS economist Chua Han Teng and Maybank economists Chua Hak Bin and Lee Ju Ye noted that May’s headline inflation rate was the lowest since early 2022, while core inflation was at the lowest since mid-2022.

The Maybank team and Liu also noted a moderation in consumer spending, with consumers pulling back on their earlier revenge splurge following the post-Covid reopening.

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Barclays economist Brian Tan highlighted that travel-related items’ contribution to yoy core inflation moderated in May, “reflecting both a base effect from rising travel costs last year, as well as a levelling-off this year following a surprise jump in April 2023”.

“The quick levelling-off in travel costs also hints at the folly of responding to such volatile prices with FX (forex) policy,” he said.

The official full-year inflation estimates remained unchanged, with MAS and MTI largely maintaining their inflation outlook.

In the latest report, they noted that core inflation is expected to moderate further in the second half of 2023, reinforcing their previous statement in May that core inflation will be “slowing more discernably” in the latter half of the year. This comes from imported costs being reduced and the current tightness in the domestic labour market easing. 

Unlike for the May report containing April’s figures, the June report on May’s figures did not say that core inflation is “expected to stay elevated in the next few months”.

Despite agreeing that core inflation will remain on an easing trend, economists also commented on its stickiness.

DBS’ Chua said: “Core inflation would still be sticky on the way down and considered elevated compared to the pre-pandemic average, given the impact of the one percentage-point GST (goods and services tax) hike and domestic labour cost pressures, even if they soften somewhat.”

RHB senior economist Barnabas Gan said that he expects inflation momentum to ease further into the year – but on the back of El Nino weather conditions in the third quarter, potentially higher agricultural costs could mean sticky inflation pressures in the near term. “Separately, the recent decision by Opec (Organization of the Petroleum Exporting Countries) to cut collective oil output in 2024 by 1.4 million barrels per day may inject upside risks to current oil prices against our year-end Brent forecast,” he added.

UOB’s Alvin Liew said: “While still maintaining our 2023 forecasts unchanged, we note that if the stickiness of core price increases persists for the next two months, then we may need to revise our core CPI (consumer price index) forecast higher.”

Lower inflation was recorded for almost all categories in May.

Private transport inflation fell – to the lowest since March 2021 – due to slower rises in car prices, and a sharper fall in petrol prices. “Petrol prices extended their plunge amid softening oil prices, and high base effects from the Russia-Ukraine war,” noted the Maybank duo.

Services inflation moderated, largely due to smaller increases in holiday expenses and point-to-point transport services costs.

On the bread-and-butter front, the smaller food inflation figure partly reflects base effects from higher food services costs after the economic reopening last year, and global food prices rising following the outbreak of the war between Russia and Ukraine, noted Barclays’ Tan.

Accommodation inflation dipped as housing rents rose more slowly. Inflation in retail and other goods slipped, as the prices of clothing and footwear, and household durables recorded smaller increases.

The only category to record a rise was electricity and gas, which saw inflation rise on account of a larger increase in electricity costs.