Prices in S'pore set to keep rising amid Ukraine war

Inflation remains high, with the authorities and experts expecting prices to continue rising in the near future amid the disruptions caused by the war in Ukraine.

Although core inflation eased last month, with lower inflation for services, food and electricity and gas, overall inflation rose on the back of higher car prices.

There will be more pressure on prices in the coming months and the Monetary Authority of Singapore (MAS) is expected to tighten monetary policy next month to curb inflation. The Singapore dollar may get stronger, experts said.

Last month, core inflation, which strips out accommodation and private transport costs, eased to 2.2 per cent year on year after it hit a 10-year high of 2.4 per cent in January. While this was still high, economists polled by Bloomberg had expected it to hit 2.6 per cent.

However, overall inflation increased to 4.3 per cent last month, up from 4 per cent the month before, on the back of a jump in private transport inflation.

Global inflation is expected to stay high for some time before easing in the latter half of the year, MAS and the Ministry of Trade and Industry (MTI) said.

"In the near term, heightened geopolitical risks and tight supply conditions will keep crude oil prices elevated. Supply-demand mismatches in commodity markets due in part to geopolitical factors, bottlenecks in global transportation, as well as labour shortages in a number of Singapore's major trading partners are also likely to persist," they said.

Experts noted that the full effects of the Ukraine war will be felt in the coming months.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said: "The Ukraine-Russia conflict intensified in March, driving both food and energy prices higher and disrupting commodity supplies. Core inflation will likely jump in March.

"Domestically, rising wage costs in a tighter labour market and stricter foreign worker measures will filter through to higher services prices."

OCBC Bank chief economist Selena Ling added that petrol prices will also feed into transport costs.

She said: "MAS will tighten monetary policy at the upcoming April meeting to combat elevated imported inflation."

MAS and MTI also noted that the rising cost of air travel is expected to account for a significant part of the increase in core inflation in the near term. Car and accommodation cost increases are also likely to remain strong in the near future.

Private transport inflation last month jumped to 17.2 per cent, up from the 14 per cent the month before. Certificate of entitlement premiums climbed further yesterday for all categories except motorcycles.

The cost of retail and other goods also rose, while accommodation inflation edged up due to a larger increase in housing rents.

On the other hand, electricity and gas prices rose at a slower pace. Food inflation and services inflation also eased, as the cost of telecommunication service fees declined more sharply.

Airfare inflation moderated last month with the easing of testing requirements under vaccinated travel lanes, said MAS and MTI.

Core inflation is forecast to pick up further in the near term, and could reach 3 per cent by the middle of the year before easing in the second half as external inflation recedes, they added.

For 2022 as a whole, core inflation is projected to average 2 per cent to 3 per cent while overall inflation is forecast to come in within 2.5 per cent to 3.5 per cent.

Ms Cheryl Chan, ADDX senior vice-president for capital markets, added: "In the short to medium term, we also expect interest rate increases, given Singapore's higher exposure to US rate hikes from trade and capital flows."