Singapore core inflation up for second straight month

Singapore's core inflation rose to 2.8 per cent year-on-year in September, increasing for the second consecutive month. The increase in September from August's figure of 2.7 per cent was largely due to a rise in retail and other goods inflation, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) on Wednesday (Oct 23).

A Reuters poll of economists had forecast an unchanged figure of 2.7 per cent for September. Overall or headline inflation eased to 2 per cent year-on-year in September from 2.2 per cent in August.

The change was mainly driven by a steeper fall in private transport costs which more than offset the increase in core inflation, MAS and MTI said. Core inflation excludes accommodation and private transport.

On a month-on-month basis, core inflation increased by 0.1 per cent while overall inflation rose by 0.3 per cent. Retail and other goods inflation rose to 0.8 per cent in September compared to 0.4 per cent in

Services inflation remained at 3.3 per cent in September as a fall in telecommunication service fees was broadly offset by a larger increase in tuition and other fees, holiday expenses and health insurance costs.

Accommodation inflation dropped to 2.7 per cent in September from 2.9 per cent in August as there was a smaller increase in housing rents. Private transport costs fell by a sharper 2.4 per cent from 1 per cent in August due to a larger decline in car prices alongside lower petrol prices.

OUTLOOK
While global energy prices have been volatile in recent weeks, they have generally remained below the levels a year ago, said MAS and MTI. "Singapore’s imported manufactured goods prices have also continued to be on a broad decline," they added.

At the same time, services inflation remains on a moderating trend and should ease further over the rest of the year, MAS and MTI also said that the gradual strengthening of the Singapore dollar's trade-weighted exchange rate should continue to temper Singapore's imported inflation.

"On the domestic front, unit labour costs are projected to rise more gradually alongside moderating nominal wage growth and improving productivity," they said. "The pass-through of earlier increases in labour costs to consumer prices has largely peaked and is expected to continue at a reduced pace."

Singapore's core inflation is therefore "expected to stay on a gradual moderating trend and reach around 2 per cent" by the end of 2024, said MAS and MTI. Core inflation is projected to average out at 2.5 per cent to 3 per cent in 2024 and further decrease to 1.5 per cent to 2.5 per cent in 2025.

"Meanwhile, accommodation inflation is anticipated to come in lower next year as leasing demand moderates, said MAS and MTI. "This should partly offset an anticipated pickup in private transport inflation amid still-firm demand for cars."

Taking these factors into account, overall inflation is expected to come in at around 2.5 per cent for the whole of 2024 and average between 1.5 per cent and 2.5 per cent in 2025. "Risks to the inflation outlook are relatively balanced. Domestically, stronger-than-expected labour market conditions could lead to a slower easing in unit labour cost growth," said MAS and MTI.

"An intensification of geopolitical tensions may lead to higher commodity prices and add to imported costs. Conversely, a significant downturn in the global economy could induce a greater easing of cost and price pressures, causing domestic inflation to come in materially lower than expected."