Singapore’s core inflation rebounds to 3.3% in October; prices to remain volatile in coming months

SINGAPORE’S headline inflation is likely to remain volatile in the coming months due to fluctuations in Certificate of Entitlement (COE) prices.

That’s according to private-sector economists, after both headline and core inflation picked up in October.

Headline inflation for the month edged up to 4.7 per cent, higher than the 4.1 per cent recorded in September, data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) showed on Thursday (Nov 23).

The latest reading was also higher than the 4.5 per cent median forecast by private-sector economists, according to a Bloomberg poll. MTI and MAS attributed the higher headline inflation to increased private transport prices and a rise in core inflation.

Core inflation, which excludes accommodation and private transport, rose to 3.3 per cent. This was a tick higher than the 3 per cent recorded in the previous month, and above economists’ median estimate of 3.1 per cent.

MTI and MAS attributed the higher core prices to higher inflation for services, and retail and other goods, as well as a rise in electricity and gas costs.

“While inflation has been moderating over the course of 2023, October’s uptick kept price increases high versus the pre-pandemic average,” noted DBS economist Chua Han Teng, adding that favourable base effects have also largely run their course.

MAS’ decision to maintain a “sufficiently tight policy” during its last monetary policy meeting in October to continue to curb inflation thus makes perfect sense, said Chua. The central bank had left monetary policy settings unchanged in October, extending the pause from its April meeting.

The surprise in inflation figures in October prompted some private-sector economists to nudge up their full-year 2023 inflation forecasts.

Barclays economist Brian Tan now projects that headline inflation will be at 4.8 per cent in 2023, from 4.7 per cent previously – though he still expects core inflation to average 4.1 per cent.

UOB economists Alvin Liew and Jester Koh raised their headline inflation forecast to 4.8 per cent, from 4.7 per cent. They also adjusted their core inflation forecast to 4.1 per cent, from 4 per cent.

In contrast, RHB acting group chief economist Barnabas Gan maintained his full-year 2023 forecast for headline and core inflation at 4.6 per cent and 4 per cent, respectively.

Economists still expect MAS to maintain monetary policy settings at the next planned meeting in January, but were split on whether the central bank will ease policy settings in the later part of 2024.

Barclays’ Tan and Bank of America’s Asia and Asean economist Ang Kai Wei believe MAS will leave monetary policy unchanged in 2024 – but with the risks skewed towards further tightening, given lingering inflation concerns.

Others, like HSBC Asean economist Liu Yun, believe that MAS could ease monetary policy by reducing the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band as early as April 2024.

UOB’s Liew and Koh also expect a reversal of monetary policy tightening in 2024, possibly as early as in April, but noted that this could be delayed to the July or October meetings “given the possible lagged transmission of earlier wage increases and elevated business costs into services inflation”.

In their statement, MAS and MTI kept to their inflation outlook from the previous release, with core inflation still projected to come in at around 4 per cent in 2023, and headline inflation to average around 5 per cent.

In 2024, headline and core inflation are expected to average between 3 per cent and 4 per cent, and 2.5 and 3.5 per cent respectively. Excluding the transitory effects of the upcoming goods and services tax (GST) hike to 9 per cent in January, headline and core inflation are projected to come in at between 2.5 per cent and 3.5 per cent, and 1.5 per cent and 2.5 per cent respectively.

In December, core inflation is expected to edge down to between 2.5 per cent and 3 per cent year on year, said MAS and MTI. But come early 2024, core inflation is expected to be affected by the increase in the GST rate, as well as seasonal effects.

“However, core inflation should resume a broadly moderating trend over the course of 2024, as import cost pressures decline and tightness in the domestic labour market continues to ease.”

HSBC’s Liu noted that there may be more imminent upside risks to Singapore’s inflation readings in the coming months, given the recent geopolitical tensions, upcoming GST hike, and other administrative price increases planned for 2024, such as the 7 per cent hike in public transport fares from December this year.

Inflation in key categories

On a month-on-month basis, headline inflation was up 0.2 per cent in October, while core inflation increased by 0.4 per cent. Higher inflation was recorded for most categories in October.

Private transport inflation climbed to 11.7 per cent, from the previous month’s 8.5 per cent, driven by a faster pace of increase in car prices.

Services inflation was up 3.4 per cent, from the 3.1 per cent recorded in September, mainly due to a larger increase in holiday expenses.

Retail and other goods inflation nudged up to 1.6 per cent, from 0.9 per cent previously, as the prices of personal care products and medical goods rose more strongly.

Electricity and gas inflation was up 1.8 per cent in October, after falling 1.4 per cent the previous month, due to higher electricity and gas tariffs.

In contrast, food inflation eased to 4.1 per cent, from 4.3 per cent the previous month, with smaller increases in the prices of non-cooked food and prepared meals.

Accommodation inflation, too, moderated to 4.2 per cent, from 4.3 per cent in September, as the pace of increase in housing rents eased.