Consumer prices in Singapore stubbornly continued their climb in August to a near 14-year high as food items and services became more costly.
Geopolitical tensions, rising global commodity prices, supply chain disruptions and food nationalism, apart from unpredictable weather, are expected to add to uncertainties.
Singapore had moved ahead of the curve in tackling inflation, but the August data suggests challenging times ahead.
Core inflation, which excludes private transport and accommodation costs, and reflects the expenses of Singapore households more accurately, hit 5.1 per cent year on year. This is higher than the 4.8 per cent in July and marks its highest level since it hit 5.5 per cent in November 2008.
August's headline consumer price index (CPI) or overall inflation came in at 7.5 per cent, matching the 14-year high in June 2008. In July, it had touched 7 per cent.
The jump mainly reflected higher transport inflation and holiday expenses, steeper hikes in housing rentals and more costly food and services.
CIMB economist Song Seng Wun was keeping an eye on food and accommodation costs.
"The impact of higher input costs from earlier months is working its way to consumers," he said.
Food prices were up 6.4 per cent in August from a year ago. Mr Song pointed out that a small portion of the public still rent, and said the rental hike was "crazy".
Condominium rents surged 27.5 per cent year on year in August, and HDB rents were 21.6 per cent higher.
For the full year, the headline inflation forecast remains unchanged at between 5 per cent and 6 per cent, while core inflation is projected to average between 3 per cent and 4 per cent, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry said on Friday.
Striking a more cautious tone, they said "core inflation is projected to stay elevated over the next few months".
For the first eight months of the year, headline inflation stands at 5.7 per cent year on year, which is near the upper end of the MAS forecast.
OCBC Bank's chief economist Selena Ling and Mr Song believe headline inflation will remain within MAS projections, that it will peak later and stay elevated for longer.
"I still think by December it will lower just because the base for comparison will be a little bit kinder," said Mr Song, who noted that headline inflation in December 2021 hit 4 per cent.
But Oxford Economics' senior economist Alex Holmes thinks that a breach of the full-year forecast "now looks likely".
For headline inflation to stay within projections would require more moderate month-on-month increases for the rest of the year.
"But that is not looking likely, given the core price pressures emanating from a very tight labour market and another likely hike in utility tariffs at the start of the fourth quarter due to sky-high global gas prices," Mr Holmes noted.
Ms Ling expects 2022 core inflation to come in above 4.2 per cent, higher than MAS estimates.
She noted that the escalation of the Russia-Ukraine war and the rice export ban by India could raise risks of higher prices, on top of domestic wage pressures.
Economists now expect MAS to tighten its monetary policy at the mid-October meeting, given the strong inflationary pressures. The risk of further action such as the re-centring of the monetary band is now also "very high", they say.
MAS has been tightening monetary policy to fight inflation. The move means a stronger Singdollar that would make imports cheaper and exports more costly, but MAS has warned that it also risks slowing the economy.