Singapore’s Dec 2023 core inflation hits 3.3%, averages 4.2% for 2023

SINGAPORE: In December of last year, Singapore’s core inflation registered a slight increase to 3.3 per cent year-on-year, as per official data revealed on Tuesday (23 Jan).

This uptick from November’s 3.2 per cent was attributed to a rise in services inflation, as reported by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

Core inflation, excluding accommodation and private transport costs, had reached a 14-year high of 5.5 per cent in January and February before a downward trend.

By September, it had decreased to 3 per cent, the lowest since March 2022.

For the entirety of 2023, core inflation averaged 4.2 per cent, surpassing 2022’s figure of 4.1 per cent.

Concurrently, the headline consumer price index, reflecting overall inflation, was 3.7 per cent in December—up from 3.6 per cent in November.

MAS and MTI noted that this increase was influenced by a faster rise in private transport costs and an upturn in service inflation.

Overall inflation for the year settled at 4.8 per cent, a decrease from the previous year’s 6.1 per cent. The rise in the Goods and Services Tax (GST) rate to 8 per cent played a role in shaping inflation rates for 2023.

Services inflation climbed to 3.9 per cent in December, up from November’s 3.5 per cent, primarily driven by increased holiday expenses. While airfares saw a slight decline, point-to-point transport services fees and bus and train fares experienced stronger increases.

Private transport inflation increased to 5.0 per cent in December, compared to 4.2 per cent in November, propelled by larger hikes in car and petrol prices.

Retail and other goods inflation marginally increased to 1.1 per cent in December, driven by rising costs of household durables and steeper prices for personal care goods.

Electricity and gas inflation eased to 1.3 per cent in December due to a smaller increase in electricity costs.

Food inflation decreased to 3.7 per cent in December, reflecting a more gradual rise in the prices of non-cooked food.

Accommodation inflation remained unchanged as housing rents continued to rise at a steady pace.

Outlook for 2024

In 2024, the projection for core inflation is an average ranging between 2.5 per cent to 3.5 per cent. When excluding the transitory effects of the 1 percentage point increase in the GST rate to 9 per cent, core inflation is anticipated to be within the range of 1.5 per cent to 2.5 per cent.

The upcoming year is expected to witness the impact of increases in the GST rate, bus and train fares, and electricity and gas tariffs, particularly in the early months of 2024, according to statements from MAS and MTI.

Despite these early pressures, MAS and MTI express confidence that core inflation will gradually moderate throughout the year.

This positive shift is attributed to the anticipated decline in import cost pressures and a relaxation in the tightness of the domestic labour market.

In the global context, crude oil prices, which experienced a decline in the last quarter of 2023, are predicted to stabilize at current levels.

Furthermore, global prices for various commodities, including food and manufactured goods, are continuing their downward trajectory.

A moderation in prices for services associated with overseas leisure travel is anticipated as international hospitality industries improve their supply conditions throughout 2024.

The stronger S$ trade-weighted exchange rate is also expected to contribute to tempering Singapore’s imported inflation in the upcoming quarters.

On the local front, unit labour costs are expected to rise at a slower pace, aligned with the gradual cooling of the labour market.

While businesses are likely to pass on higher labour costs to consumer prices, this is anticipated to happen at a more measured pace.

Despite these positive projections, the outlook acknowledges the existence of upside risks to inflation.

These risks include potential fresh shocks to global energy and shipping costs due to geopolitical conflicts, higher food commodity prices resulting from adverse weather events, and the possibility of more persistent tightness in the domestic labour market.

Conversely, the unexpected weakening of the global economy could prompt a faster easing of both cost and price pressures, as highlighted by MAS and MTI.