MAS likely to hold in July as Singapore’s May core inflation undershoots forecasts: economists

[SINGAPORE] The Monetary Authority of Singapore (MAS) is likely to hold monetary policy settings steady at its July meeting, private-sector economists said on Tuesday (Jun 23), after core inflation held at 1.4 per cent in May, defying forecasts of an acceleration.

Data from the Singapore Department of Statistics showed core inflation unchanged from April, coming in below the 1.6 per cent median estimate in a Bloomberg poll of private-sector economists.

MAS and the Ministry of Trade and Industry (MTI) said in a joint statement that the reading was largely due to lower services inflation, which offset higher food and retail and other goods inflation.

Headline inflation held steady at 1.8 per cent in May – its third consecutive month at that level – as higher private transport, accommodation, food and retail and other goods inflation was offset by lower services inflation.

The figure was also below economists’ expectations of 2 per cent.

On a month-on-month basis, the core consumer price index was unchanged, while headline CPI rose by 0.7 per cent.

“No urgency for MAS to tighten”

OCBC’s chief economist Selena Ling said in a research note that core inflation appears to have peaked at 1.7 per cent in March, after climbing for most of 2025 and in the first quarter of 2026.

With the inflation trajectory showing signs of easing, there is no urgency for MAS to tighten at the July meeting, Ling noted – though it would be premature to fully rule out a tightening move in the second half of 2026.

The Singapore dollar nominal effective exchange rate is currently trading about 1.6 per cent on the stronger side of its parity band, likely reflecting easing core inflation concerns, she added.

Standard Chartered chief economist Edward Lee also expects MAS to adopt a wait-and-see approach at its July meeting, noting that the benign inflation readings alongside already-cautious consumer spending give the central bank room to hold.

Barnabas Gan, RHB group chief economist, expects MAS to maintain its current appreciation pace at 1 per cent with no changes to the width of the band or its centre.

Still, a tightening move later in 2026 cannot be fully discounted, with the risks skewed towards potential tightening if prolonged Middle East tensions sustain upward pressure on global energy prices, he added.

In contrast, UOB associate economist Jester Koh believes that MAS will “remain on a prolonged pause through 2026 and into 2027” – though he noted that there is some risk of a 50-basis-point slope steepening in either July or October.

Such a move would be warranted if imported inflation pressures broaden or inflation expectations become unanchored – or if a re-escalation of the Middle East conflict triggers a fresh surge in energy prices, Koh added.

Electricity tariffs

Economists also warned that electricity tariffs, which have fallen on a year-on-year basis for 17 consecutive months, are set to surge sharply from July.

MAS and MTI noted in their statement that global energy prices, while easing recently, remain elevated relative to 2025 levels. As higher energy costs pass through global supply chains with a lag, production and transport costs for a wider range of Singapore’s imported goods and services are expected to rise over time.

UOB’s Koh estimates that electricity tariffs will rise by 13 to 15 per cent quarter on quarter in the third quarter of 2026, with the Energy Market Authority having already flagged a significant increase in electricity costs for most households from July.

Currently, electricity tariffs stand at S$0.2972 per kilowatt-hour after factoring in goods and services tax.

OCBC’s Ling warned that town gas tariffs could also face further and potentially sharper hikes later this year.

Still, the spike will be partially offset by government relief measures, she noted, as eligible households will receive up to S$190 in U-Save rebates in July as part of the second disbursement of the year.

Looking further ahead, Koh expects a 6 to 7 per cent pullback in electricity tariffs in the fourth quarter of 2026, assuming Brent crude averages around US$80 per barrel in Q3, down from around US$99 per barrel quarter to date in the second quarter.

Inflation outlook

MAS and MTI maintained their 2026 full-year forecast range for both core and headline inflation at 1.5 to 2.5 per cent.

Inflation risks remain tilted to the upside, they said, as a slower-than-expected resumption in global energy supplies or continued shortages of key intermediate inputs to regional supply chains could further raise imported costs.

But downside risks are also present, as a stronger-than-expected tightening in global financial conditions could slow economic activity and lower inflation.

RHB maintained its own full-year forecasts at 2 per cent for core inflation and 2.5 per cent for headline inflation, citing firmer global cost pressures. It also warned that a sustained increase in Brent crude to US$140 per barrel in H2 2026 amid renewed geopolitical tensions could push headline inflation to around 5 per cent.

DBS senior economist Chua Han Teng noted that ongoing negotiations following the US-Iran interim peace deal have facilitated the resumption of maritime traffic through the Strait of Hormuz, reducing the risk of escalating cost pressures.

However, flows of critical input supplies from the Middle East, including oil and gas, are likely to take months to gradually normalise to pre-war levels as confidence in transiting the strait rebuilds, suggesting any downside to inflation would be gradual.

Key CPI categories

In May, inflation trends across CPI categories were mixed, with private transport and accommodation costs rising faster while services inflation eased.

Private transport recorded the largest increase, rising to 8.6 per cent year on year in May from 8.1 per cent in April, due to larger increases in car and motorcycle prices.

Food inflation picked up to 1.8 per cent from 1.6 per cent in April, as both non-cooked food and food services prices rose at a quicker pace.

Retail and other goods inflation edged up to 1.6 per cent from 1.5 per cent, as prices of personal care appliances and information and communication equipment rose at a faster pace.

Accommodation inflation edged up to 0.5 per cent from 0.4 per cent in April, due to a larger increase in housing rents.

Meanwhile, services inflation eased to 1.3 per cent in May from 1.5 per cent in the previous month, largely due to a steeper decline in telecommunication services prices.

Electricity and gas prices fell at the same pace as in April, declining 3 per cent year on year, as electricity prices dropped at a similar rate in both months.