Singapore’s core and headline inflation continued to edge up in December 2021.

Headline inflation – the measure of the total inflation in the economy – rose to 4%, according to the Consumer Price Index (CPI) released by the Department of Statistics (Singstat) on Jan 24.

December’s reading exceeds the 3.7% penciled by economists and surpasses the high of 3.8% seen in the month before.

Meanwhile, core inflation – which gauges price increments to sectors other accommodation and transport – picked up from 1.6% in November to hit 2.1% in December. The figure also exceeds the 1.8% anticipated by economists.

This came in response to higher services inflation due to a steep rise in the price of airfares, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) detail in a joint release.

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Looking ahead, the authorities highlighted “significant uncertainty” surrounding the outlook for inflation in the near-term. These include the costs of air travel and commodity prices such as food and oil.

MAS and MTI also expect global inflation to remain elevated before easing gradually towards the end of the year.

"Given the recent stronger-than-projected inflation outturns, including the sharp upticks in airfares, MAS and MTI are reviewing the current forecasts ranges cpi all items inflation and MAS core inflation in 2022," the authorities state.

Overall, core inflation came in at 0.9% in 2021, while that for headline inflation was 2.3%. For comparison, both metrics came in at -0.2% in 2020.

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Economists note that MAS, atypically, is not giving a full-year inflation forecast.

"The higher-than-expected headline inflation, as well as core inflation crossing the 2.0% handle reinforce our call for MAS to further normalise monetary policy in April 2022," according to UOB's economists, who expect 2022 inflation to hit 2.5%, up from 2% projected earlier.

Associate professor Yeo Wee Yong says that although Singapore manages using exchange rates, interest rates, nevertheless, are susceptible to changes in the overall economy.

For example, bank loan rates might be affected interest rate increments. With many mortgage loans on floating rates, higher rates will naturally have an impact, says Yeo, who is with the NUS Business School's department of finance.

"This coupled with increasing prices, and hence living costs, as well as the impending GST hike if it materialises, mean that households need to plan their budget more closely ahead," he says.

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