Singapore’s headline, core inflation ease further in June

SINGAPORE’S headline and core inflation continued their downward trends in June, easing to multi-month lows, a likely sign that inflation has already passed its peak, said private-sector economists.

Headline inflation in June shrank to 4.5 per cent year on year, from May’s 5.1 per cent, data from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Monday (Jul 24) indicated, faster than the median 4.4 per cent forecast by private-sector economists in a Bloomberg poll.

Core inflation, which excludes accommodation and private transport, fell to 4.2 per cent on the year in June, from 4.7 per cent in the preceding month – in line with the 4.2 per cent estimated by economists.

With inflation tipped to moderate further in the second half of the year, economists maintained their stance that the MAS is unlikely to change its monetary policy settings during the next meeting in October.

“The stronger S$NEER (Singapore nominal effective exchange rate) has limited imported inflation... thus suggesting that there remains no impetus for the MAS to tighten policy further, especially given today’s official downgrade of Singapore’s inflation for 2023,” said RHB senior economist Barnabas Gan.

While MAS and MTI maintained their official full-year estimate for core inflation, their headline inflation forecast has been lowered to between 4.5 per cent and 5.5 per cent – as announced by MAS managing director Ravi Menon on Jul 5 – from 5.5 per cent and 6.5 per cent previously.

On a month-on-month basis, both headline and core inflation rose slightly in June. Headline inflation was up 0.5 per cent on the month due to higher private transport costs. Meanwhile, core inflation edged up 0.2 per cent, mainly due to higher costs for travel-related services.

HSBC economist Yun Liu noted that the downward trend for core inflation has largely been driven by energy disinflation, and to a lesser extent by easing food and services inflation. “While services inflation has cooled on the margin, it remains elevated due to a still-tight labour market,” she added.

The faster-than-expected moderation in headline inflation was thanks to easing core prices and falling private road transport costs, said Liu. “In particular, this was driven by both energy disinflation and declining certificate of entitlement (COE) prices after reaching record highs in April.”

Private-sector economists expect both headline and core prices to continue easing in the second half of the year. Imported costs should continue to decline from levels a year ago, and the current tightness in the local labour market should abate, said OCBC chief economist Selena Ling.

“In addition, the increase in COE quota and ramp-up in housing units available for rental, private transport and accommodation inflation are also tipped to moderate over the course of this year,” she added.

While inflation ticked higher on a month-on-month seasonally-adjusted basis, this is “unlikely to be a concern for now, unless we see a stronger increase in the coming months due to unexpected price shocks”, said DBS economist Chua Han Teng. He maintained his full-year forecasts for headline and core inflation at 4.7 per cent and 4 per cent respectively.

Nevertheless, RHB’s Gan highlighted three key reasons why prices could remain sticky into the third quarter. For one thing, improving global economic dynamics may underpin consumer prices as demand stays resilient. Additionally, potential higher agricultural prices may be on the cards in the immediate months ahead due to El Nino weather conditions in the second half of the year. Recent moves to cut oil supplies by Russia and the Organization of the Petroleum Exporting Countries may also continue to support energy prices in the months ahead, he noted.

Lower inflation was recorded for all categories in June. In particular, private transport inflation fell to 5.8 per cent, from May’s 7.2 per cent, driven mainly by a steeper decline in petrol prices and a smaller increase in car prices.

Food inflation eased to 5.9 per cent in June, from 6.8 per cent in May, as the prices of non-cooked food and prepared meals rose at a slower pace.

Services inflation moderated to 3.6 per cent for the month, from 3.9 per cent before. This was mainly due to holiday expenses and airfares increasing at a slower pace.

Electricity and gas inflation nudged down to 3.1 per cent, from 3.3 per cent in May, on the back of a smaller increase in electricity costs.

In a separate release on Monday, the Department of Statistics (SingStat) reported that headline inflation for general households rose by 5.6 per cent year on year in the first half of 2023. This was lower than the 7 per cent recorded in the second half of last year.

By household income groups, headline inflation for the lowest 20 per cent; middle 60 per cent; and highest 20 per cent income groups came in at 4.9 per cent; 5.6 per cent; and 5.9 per cent year on year respectively in the first half of 2023.