Overview of Current Inflation Trends
As of September 2024, Singapore’s core inflation has ticked up to 2.8%, a slight increase from 2.7% in August. This rise is largely attributed to a surge in retail and other goods inflation. While the month-on-month price increase moderated to 0.1% (down from 0.3% in August), the persistent uptick in core inflation contrasts sharply with the Monetary Authority of Singapore’s (MAS) guidance of a gradual moderation towards 2% by the end of 2024.
Headline inflation, meanwhile, decreased to 2.0% from 2.2%, influenced by falling private transport costs, which is an encouraging sign for consumers.
Drivers of Core Inflation
- Retail & Other Goods: The most significant contributor to the rise in core inflation was retail and other goods, which saw inflation climb to 0.8% from 0.4%. The slower decline in clothing and footwear prices indicates a lower base effect.
- Services Inflation: Stubbornly high services inflation at 3.3% reflects increasing costs in areas such as holiday expenses, tuition, and healthcare. The pressures from rising wages, particularly after the local qualifying salary increases in July, may continue to exert upward pressure on prices.
- Food and Utilities: Food inflation eased slightly to 2.6%, with a mix of changes in prepared meal costs and restaurant prices. Electricity and gas inflation moderated, but still remains elevated at 6.3%. This could shift further downward with upcoming tariff reductions.
- Private Transport Costs: A notable decline in private transport costs by 2.4% signals easing pressure in this area, particularly driven by lower car prices and petrol costs.
Implications for Monetary Policy
The MAS has maintained a stance of expecting core inflation to gradually moderate to 2% by the end of the year. However, with the recent rise in core inflation, achieving this target appears increasingly ambitious. The persistent strength of services inflation and the impacts of the labor market tightening suggest that inflationary pressures may remain.
Given the stronger-than-expected GDP growth of 4.1% in the third quarter, up from 2.9% in the second quarter, the economic backdrop complicates the MAS’s potential easing of monetary policy. The current economic climate, characterized by low unemployment and wage pressures, could deter rapid monetary easing.
Forecasts and Future Outlook
Analysts maintain forecasts of average core inflation around 2.8% for 2024, with a year-end projection of 2.5%. Headline inflation is anticipated to average 2.6% due to declining transport costs. As the impact of the 1% GST hike fades in early 2025, both core and headline inflation are expected to fall to 1.8% and 1.7%, respectively.
The MAS is likely to consider a slight reduction in the S$NEER slope in January 2025. However, if inflation remains sticky or GDP growth continues robust, a delay to April 2025 may be warranted. Despite the uptick in core inflation, measures of momentum suggest a cooling trend, but it may not suffice to align with MAS’s targets in the immediate term.
Overall, while Singapore’s economic growth is robust, the challenges posed by rising core inflation and sticky service prices complicate the MAS’s path forward. The interplay of wage pressures and consumer demand will be critical in shaping inflation dynamics in the coming months, necessitating close monitoring by policymakers and businesses alike.
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