Singapore’s core inflation, a key measure of underlying price trends, showed a notable easing, dropping to 4.7 percent year-on-year in May, according to official data released on Friday. This decline comes after reaching a 14-year high of 5.5 percent in January and February, followed by a decrease to 5 percent in March and April. The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) attributed the easing of core inflation to lower inflation rates in services and food sectors. Overall inflation also decreased to 5.1 percent in May, primarily driven by a drop in private transport inflation.
Core Inflation and Sector-Specific Trends
Core inflation excludes accommodation and private transport costs, providing insight into underlying price changes. May’s core inflation figure of 4.7 percent aligns with the consensus of economists in a Reuters poll. The decline in core inflation can be attributed to falling inflation rates in services and food sectors. Services inflation decreased from 4.3 percent in April to 3.9 percent in May, driven by smaller increases in holiday expenses and point-to-point transport service costs. Food inflation also eased from 7.1 percent in April to 6.8 percent in May. Accommodation inflation slightly decreased from 4.9 percent to 4.7 percent as housing rents rose at a slower pace.
Private Transport and Overall Inflation
Private transport inflation saw a significant decrease, dropping from 10.4 percent in April to 7.2 percent in May. This was attributed to slower car price increases and a sharper decline in petrol costs. Overall inflation fell to 5.1 percent year-on-year in May, down from 5.7 percent in the previous month. This decline can be attributed to both lower core inflation and a decrease in private transport inflation.
Factors Influencing Inflation
MAS and MTI noted that global supply chain disruptions and consumer goods inflation in advanced economies have continued to ease. Additionally, global energy and food commodity prices have moderated, resulting in a decline in Singapore’s imported goods prices on a year-on-year basis. Locally, unit labor costs are expected to rise in the near term, with businesses passing on accumulated labor costs to consumer prices. However, this is projected to occur at a more moderate pace due to a slowdown in domestic activity. The authorities expect further moderation in core inflation during the second half of the year, driven by reduced imported costs and a less tight domestic labor market. The increase in Certificate of Entitlement (COE) quota and the supply of housing units available for rental are also expected to contribute to a moderation in inflation throughout the year.
Inflation Projections and Risks
For the whole of 2023, authorities project headline inflation to average between 5.5 percent and 6.5 percent, while core inflation is expected to average between 3.5 percent and 4.5 percent. Excluding the transitory effects of the 1 percentage point increase in the Goods and Services Tax (GST) to 8 percent, headline inflation is projected to range from 4.5 percent to 5.5 percent, and core inflation is anticipated to range from 2.5 percent to 3.5 percent. Upside risks, such as shocks to global commodity prices and persistently tight domestic labor market conditions, remain. However, there are also downside risks, including a sharper-than-projected downturn in advanced economies, which could lead to a general easing of inflationary pressures.
Conclusion
Singapore’s core inflation eased to 4.7 percent in May, reflecting lower inflation rates in services and food sectors. The decline in overall inflation can be attributed to a decrease in private transport inflation. Factors such as global supply chain improvements and lower global energy and food commodity prices have contributed to the moderation in inflation. Looking ahead, authorities anticipate further moderation in core inflation, influenced by reduced imported costs and a less tight domestic labor market. While upside risks persist, downside risks such as a downturn in advanced economies could lead to a general easing of inflationary pressures.
