Singapore’s core and headline inflation have continued to grow in the month of May, with core inflation reaching a 13-year high since December 2008 and headline inflation reaching a high not seen since November 2011.
During the month, Singapore’s CPI-All items inflation rose to 5.6% from April’s 5.4% increase, while MAS core inflation grew 3.6% y-o-y, up from the 3.3% growth seen in April.
Both figures have now surpassed the Monetary Authority of Singapore’s (MAS) full-year headline inflation estimate of between 4.5% to 5.5%. The central bank had also previously estimated core inflation to come in between 2.5% and 3.5% for the full year.
On a month-on-month (m-o-m) basis, CPI-All items and core CPI increased by 1.0% and 0.4% respectively.
The release of the May CPI figures came two days after the government announced a $1.5 billion package for households and specific sectors such as taxi drivers, to help defray the rising costs of living.
According to MAS and the Ministry of Trade and Industry (MTI), core inflation rose due to the stronger inflation across the broad categories of food, services, retail & other goods, as well as electricity & gas.
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The pickup in headline inflation was due to the higher core inflation, as well as higher inflation in accommodation and private transport.
In May, the price of food services rose, while services inflation increased slightly due to a faster pace of increase in the costs of holiday expenses and point-to-point transport services.
Accommodation prices grew due to a larger increase in housing rents.
Inflation in retail & other goods rose on the back of a steeper increase in the prices of clothing & footwear, personal effects and personal care products.
Inflation in private transport increased thanks to higher petrol costs amid higher global oil prices.
Electricity & gas inflation edged up as the average prices of electricity plans offered by open electricity market (OEM) retailers rose at a faster pace.
MAS core inflation to pick up further
In its outlook statement, MAS and MTI are expecting the MAS core inflation to pick up further in the coming months.
The figure is likely to moderate towards the end of the year as some of the external inflationary pressures die down.
However, there may be upside risks to inflation due to “geopolitical and pandemic-related shocks”.
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External inflationary pressures continue to be strong due to the higher global commodity prices and supply chain frictions driven by the Russo-Ukraine conflict. The regional pandemic situation is another cause.
In the near term, MAS and MTI expect heightened geopolitical risks and tight supply conditions to keep crude oil prices elevated.
“Prices of other commodities, such as food, are also expected to stay high amid supply-demand mismatches, as well as disruptions to global transportation and regional supply chains,” say both ministries in a statement on June 23.
On the domestic front, the labour market is expected to remain tight, which will support a firm pace of wage increases.
“Alongside improving demand, a greater pass-through of accumulating business costs to consumer prices is likely to occur, thus keeping core inflation significantly above its historical average through the year,” continues the statement.
“With private transport and accommodation inflation expected to stay firm in the near term, headline inflation will pick up by more than core inflation this year,” it adds.
MAS and MTI’s estimates for 2022’s CPI-All items inflation and MAS core inflation remain unchanged.
OCBC sees room for further monetary policy tightening
OCBC Bank’s chief economist and head of treasury research & strategy Selena Ling says she doesn’t see a reprieve in the near term for prices for private road transport, housing & utilities, food, recreation & culture and electricity & gas, as the ongoing Russo-Ukraine war and supply chain bottlenecks have not resolved yet.
She also notes that May’s headline inflation, while exceeding the Bloomberg consensus forecast of 5.5%, stood slightly below her estimate of a 5.9% growth y-o-y.
“Even though the Singapore government just announced a $1.5 billion package to help with cost-of-living expenses for businesses and low-to middle-income households, including aid for 11 slaughter houses affected by Malaysia’s partial chicken export ban and $300 GSTV-Cash for 1.5 million Singaporeans and $100 utilities credit per household for example, they are unlikely to contribute to lower prices either,” she says.
As MAS and MTI have both indicated that core CPI is expected to climb further in the coming months before moderating towards the end of the year, Ling says this would suggest room for further monetary policy tightening on the horizon, “probably sooner than later”.
“That said, the bar for another out-of-cycle tightening is probably higher since doing so in quick order within six months of the last such move would make the scheduled biannual decision process appear somewhat outdated, especially when major central banks like the Federal Open Market Committee (FOMC) is hiking 50-75 basis points (bps) at back-to-back meetings recently,” she writes.
To this end, Ling’s headline and core CPI forecasts for 2022 remain at 5.5% and 4.5% respectively.
This is as the domestic labour market tightness is unlikely to resolve quickly even with the re-opening of borders and wage inflation is likely to ratchet higher.
“Key to watch is if headline and core CPI peaks around September-November period and starts to settle as we head into the year-end as expected,” says Ling.
Headline inflation to peak in May; core inflation to accelerate further in coming months: RHB
RHB Group Research senior economist Barnabas Gan is expecting Singapore's headline inflation to peak in May, although core inflation is expected to 'accelerate further' in the coming months before stabilising in 4Q2022.
Gan's report dated June 21 comes after the Singapore government announced a $1.5 billion support package.
In Gan's view, the package is "unlikely to move the inflation needle".
"Singapore’s inflation environment is expected to be tangent on global commodity prices. For that matter, the Singapore’s Finance Ministry commented in a press conference that 'price increases (are expected) to continue in the coming months… (while) energy prices are likely to remain elevated for the rest of the year.'," he writes.
"Moreover, the support package is fundamentally a fiscal measure to provide relief for the low-income and vulnerable, rather than policies to adjust the average cost of living," he adds.
However, Gan sees the policies providing a marginal boost to economic growth, with the view that the Singapore economy is likely to expand by 3.5% in 2022.
"Singapore’s fiscal multiplier may be observed from the previous budgets - the four budgets (Unity, Solidarity, Resilience and Fortitude) in 2020 had cost $92.9 billion, and helped to alleviate $23.4 billion of economic losses. Assuming that a similar multiplier is observed at this juncture, the $1.5 billion support package could inject around S$0.4 billion of real GDP," he notes.
"This would translate to adding 0.1pct to our GDP growth expectation of 3.5%," he adds. "The rationale behind the small boost to growth is understandable given Singapore’s status as a small but open economy."
Prices 'likely to trend higher' in next few months: CGS-CIMB
CGS-CIMB Research economist Nazmi Idrus is keeping his average inflation projection of 5.1% y-o-y for the FY2022.
“Prices are likely to trend higher over the next few months. Malaysia announced a ban on chicken exports starting June 1 to stem its own domestic supply shortages, cutting off one-third of Singapore's poultry supply,” he notes, although the ban was partially lifted on June 14.
“Meanwhile, the demand-pull pressure is likely to remain strong, resulting in a firm labour market and businesses passing through costs to consumers. This should continue to support a steady increase in core inflation,” he adds.
