Singapore’s headline and core inflation remained in the green, with both metrics up y-o-y in the month of July, according to figures released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Aug 23.

MAS Core inflation, which measures price increments excluding the accommodation and private transport sectors, grew 1.0% y-o-y in July, from 0.6% in June, mainly driven by higher electricity & gas costs.

Headline inflation, or CPI-All items inflation, which measures total inflation in the economy, rose by 2.5% y-o-y in July, the highest since November 2013.

The higher headline inflation was mainly attributable to the higher electricity & gas costs, higher accommodation and food inflation. The smaller decline in the cost of retail and other goods also contributed to the higher y-o-y increase in July.

Electricity & gas costs increased due to higher electricity and gas tariffs on the back of the hike in global oil prices from a low base in 2020. Due to higher energy import costs, the electricity tariff for households was raised to 25.02 cents per kilowatt hour (kWh) for 3Q2021, from 24.13 cents per kWh in the 2Q2021.

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On a y-o-y basis, the electricity tariff rose by 19.3% in July, while the gas tariff was up by 12.9%.


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Accommodation inflation was higher y-o-y driven by the larger increase in housing rents, while food inflation rose on the back of the inflation of higher non-cooked food.

The cost of retail & other goods fell at a slower pace due to the smaller decline in the price of clothing and footwear.

Meanwhile, inflation in the services and private transport sectors fell due to the decline in telecommunication fees and due to the smaller increase in car prices respectively.

On a month-on-month basis, core CPI rose by 0.2% in July, while CPI-All items fell by 0.2%.

On a cumulative basis from January to July, core CPI inched up by 0.5% y-o-y while headline inflation increased by 1.7% y-o-y.

Looking ahead, the continued uncertainty in Singapore could dampen increases in domestic prices in the near-term, say MAS and MTI.

In the meantime, wage increases may continue to remain "restrained", while commercial rents are projected to stay low.

In comparison, private transport and accommodation costs should remain resilient on the back of firm demand.

To this end, MAS and MTI have estimated that core inflation is expected to average between 0-1% in 2021, while headline inflation is forecast to come in between 1-2% as base effects fade in the coming quarters.

Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye have kept their 2021 forecasts for headline and core CPI at 1.8% and 1% respectively. This comes as MAS highlighted that external inflation should ease over the course of 2021 amid the softening of crude oil prices with higher oil production

“Slower growth in key trading partners including China and ASEAN may also dampen the growth recovery and cap import prices,” write the analysts.

“On the domestic front, MAS expects wage increases to be restrained by the continued slack in the labour market, although private transport and accommodation costs will remain resilient due to firm demand,” they add.

OCBC Bank’s head of treasury research and treasury Selena Ling says that the recent three-month average inflation print of 2.4% is largely due to the low base effect from 2020. That said, the factors attributing to the higher inflation figures this year appear “transitionary” and are expected to ease as we head into 2022.

“With Singapore transiting into a virus-endemic stage, we expect a reduction in labour market slack to potentially begin restarting wage-push price pressures, although that would be negated by easing raw and intermediate good prices,” says OCBC’s head of treasury research and strategy, Selena Ling.

“The MAS statement also remains nuanced to indicate that global inflationary pressures should subside for the rest of this year while domestic cost pressures should be reined in for wages and commercial rentals. In addition, given international borders remain mostly closed and pending any foreign manpower policy announcements at PM Lee’s upcoming National Day Rally speech, there may likely be some incipient wage inflation in the pipeline,” she adds.

For 2022, Ling estimates that headline CPI will rise approximately the same as that of 2021 at 1.5% y-o-y. Core CPI is tipped to rise gradually in the coming quarters. She has kept her core CPI estimate unchanged at 0.7% y-o-y for 2021.

She has, however, upped her core CPI forecast from 1.0% y-o-y to 1.2% y-o-y for 2022.

“Rising core inflationary pressures may prompt an earlier monetary policy recalibration but that would likely be a 2022 story.”

The Singapore research team at RHB Group Research says it anticipates CPI inflation to remain elevated in the month of August.

This, says the team, is due to the low base effect before moderating in the consequent months.

“Global commodity prices are expected to ease in 2HFY2021 given the pickup in oil production. Sequential momentum for price pressures have shown signs of moderation. We continue to expect the soft recovery in the labour market to cap domestic price pressures,” it writes.

UOB economist Barnabas Gan has kept his headline and core inflation estimates for 2021 unchanged at 1.4% and 1.0% respectively.

That said, he recognises that full-year headline inflation for 2021 may post higher than his estimates “given Singapore’s overall positive domestic economic prognosis and elevated external inflation pressures. These may be seen even though oil prices are expected to moderate in the year ahead,” he says.

In the same report, Gan views that inflationary pressures “should stay transitory” for the year ahead.

“Crude oil prices have moderated from July’s peak to-date, likely on news of higher oil production plans by the OPEC+ group1 while energy demand may be hurt by the resurgence in Covid-19 infections globally due to the Covid-19 delta variant,” he writes.

“Moreover, the negative output gaps seen in many of Singapore’s key trading partners will likely limit Singapore’s overall import price inflation. Domestically, the slack in the labour market, although gradually diminishing, may continue to cap wage gains in the immediate months, while commercial rents are projected to stay soft on the back of Covid-19-related risks,” he adds.

Photo: Bloomberg