Inflation in Singapore to Stay High in the Next Year

Singapore’s CPI inflation rate has increased significantly since the beginning of 2022. The CPI-All Items inflation rate was 7.5% y/y in August, up from 4.0% y/y in January 2022. The measure of Core Inflation, developed by the Monetary Authority of Singapore, has also increased to 5.1% y/y in August. In the next year, Core Inflation is forecast to remain at a moderately high level.

Core inflation

Core inflation in Singapore is likely to remain high in the first half of next year, although it is forecast to moderate slightly in the second half. As the pace of economic growth slows, cost pressures are expected to ease. In 2023, core and headline inflation are both expected to average 3.5 to 4.5 per cent.

This is despite recent data that shows that the pace of economic growth is slowing. Private economists are forecasting headline inflation of 5.3 per cent this year, a slight decrease from their March forecast. This is despite the fact that core inflation excluding private transport and accommodation costs is expected to remain high.

Headline inflation

Singapore’s headline inflation will likely stay high next year even as the pace of economic growth slows, a private economist has predicted. However, the MAS has downgraded its full-year growth forecast by one percentage point to 3.8 per cent, compared to its previous forecast of 4 per cent for next year. The economists have raised their projections for core inflation, which is the underlying cost of goods and services excluding private transport and accommodation, from 2.8% in August to 3.4% in 2022.

The tight labour market poses risks to overall inflation. It can lead to a wage-price spiral – a cycle where workers demand higher wages in order to keep up with higher prices. Singapore’s productivity growth remains positive, but the wage-price ratio must not fall below that level. The MAS expects Singapore’s headline inflation to remain high next year, but it will probably moderate a bit in the fourth quarter.

Cost of living

A Singapore government report on Thursday has downgraded its full-year economic growth forecast, with growth expected to slow to a three to four-per-cent range. It blamed weaker external demand and significant downside risks to the global economy for the lower-than-expected forecast. As a result, the pace of discretionary spending in the country will likely moderate. It is also likely that trade-related sectors will drag down growth.

The government’s fiscal support is aimed at helping vulnerable groups cope with the cost increases. Since February 2022, it has stepped up its intervention with cash grants and rebates on utility bills. However, the government is not intending to increase the economy’s economic stimulus, which could lead to inflationary pressures.

Wages

The pace of economic growth in Singapore is likely to slow down in the next year, but the pace of inflation will remain high. Imports will remain a major contributor to inflation, and a tight labour market will support firm wage increases. Businesses are also expected to hike prices to pass on costs to customers. In September, core inflation in Singapore rose to 5.3 per cent, up from 5.1 per cent in August. Meanwhile, the headline consumer price index rose by 7.5 per cent year-on-year.

Rising inflation is a major concern for policymakers in Singapore. The country’s central bank tightened its monetary policy in January, joining many central banks around the world in tightening monetary policy to fight rising prices. The conflict in Ukraine has increased pressure on prices, while global supply snags have weighed on prices in many countries. The Singapore government is prepared to respond to these external factors with monetary and fiscal measures.

Demand outlook

Inflation in Singapore is expected to stay high next year despite the slowdown in economic growth. Despite the global slowdown, wage increases are expected to continue to drive prices higher, and Singapore’s core inflation will remain above its historical average. As the labor market remains tight, the pace of wage increases is expected to remain strong, supporting high inflation rates. Nevertheless, the outlook for inflation remains uncertain.

A survey by S&P Global showed that the rate of input-cost inflation accelerated in September. Higher purchase costs and rising average staff costs were the main factors, with wages rising at the second-fastest pace since August 2011. The rate of wage growth was also boosted by commissions and overtime payouts.