Singapore's core inflation drops to 2.5% in July, lowest since February 2022

SINGAPORE: According to data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Friday (23 August), Singapore's core inflation decreased to 2.5% year-on-year in July, down from 2.9% in June.

This marks the lowest level since February 2022, when it was 2.2%.

The drop in core inflation was attributed to lower inflation across all broad categories of the core consumer price index (CPI).

The core inflation rate also came in lower than the 2.9% forecasted in a Reuters poll.

On a month-on-month basis, core inflation, which excludes accommodation and private transport, fell by 0.1%.

Headline inflation, or CPI-All Items, remained unchanged at 2.4% year-on-year in July compared to June.

This stability was due to a slowdown in accommodation and core inflation being offset by a rise in private transport costs.

Month-on-month, headline inflation decreased by 0.3%.

In July, services inflation moderated to 2.9% year-on-year, down from 3.4% in June, largely due to a slower increase in holiday expenses.

Accommodation inflation eased slightly to 3.1% year-on-year, compared to 3.3% in June, as housing rents increased at a more modest pace.

Food inflation edged down to 2.7% year-on-year in July from 2.8% in June, driven by smaller increases in both non-cooked food and food services.

Retail and other goods inflation decreased to 0.3% year-on-year in July from 0.5% in June, reflecting a drop in the prices of clothing, non-durable household goods, and personal effects.

Electricity and gas inflation moderated to 6.6% year-on-year in July, down from 6.9% in June, due to a smaller rise in electricity prices.

Conversely, private transport costs increased by 0.9% year-on-year in July, reversing from a -0.7% year-on-year decline in June, as the decrease in car and motorcycle prices was smaller and petrol prices rose more steeply.

MAS & MTI: Core Inflation Expected to Gradually Moderate Through Q3 and Decline Further in Q4

The authorities observed that global energy and most food commodity prices have remained relatively stable in recent months.

According to MAS and MTI, “The costs of Singapore’s imported intermediate and final manufactured goods have also continued to be on a broad decline.”

They added that “inflation for services associated with overseas travel has moderated and should ease further over the course of the year as the air transport and hospitality sectors around the world restore supply.”

The authorities also noted that the “gradually strengthening” Singapore dollar's trade-weighted exchange rate should help temper imported inflation in the coming months.

Within Singapore, the increase in unit labour costs has slowed in line with the cooling labour market.

However, businesses are likely to continue passing on previous increases in labour costs to consumer prices, though at a reduced rate, according to MAS and MTI.

Private transport inflation is expected to moderate from last year’s levels, thanks to a projected increase in the Certificate of Entitlement (COE) supply.

Similarly, accommodation inflation should continue to ease as more rental housing units become available.

For the year as a whole, core inflation is forecast to average between 2.5% and 3.5%, while CPI-All Items inflation is expected to average between 2% and 3%.

“Excluding the transitory effects of the 1%-point increase in the GST rate to 9%, both core and CPI-All Items inflation are expected to come in at 1.5– 2.5%,” said MAS and MTI.

Potential Risks to Inflation: Geopolitical, Environmental, and Supply Chain Factors

However, risks to the inflation outlook persist, said MAS and MTI.

Fresh geopolitical shocks, adverse weather events, and renewed global transportation disruptions could exert “upward pressure” on global energy and food commodity prices, as well as shipping costs.

Additionally, stronger-than-expected local labour market conditions could lead to a re-acceleration of wage growth.

On the other hand, an unexpected weakening of the global economy might lead to a greater easing of cost and price pressures, said the statement.