Singapore core inflation eases in July as businesses refrain from raising prices on slowing demand

SINGAPORE – Consumer price pressures eased in July as core inflation edged down to 0.5 per cent year on year, with economists saying some businesses are making the hard choice of not raising prices in the face of slowing demand.

Core inflation excludes private transport and accommodation to better reflect household expenses. July’s reading was lower than the forecast of 0.6 per cent by economists in a Bloomberg poll.

In June, core inflation had come in at 0.6 per cent, unchanged from May, after it hit a four-year low of 0.5 per cent in March.

The drop in core inflation was driven by a fall in the prices of retail and other goods, as well as lower electricity and gas prices, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said on Aug 25.

Meanwhile, overall – or headline – inflation eased to 0.6 per cent year on year in July, from 0.8 per cent in June, due to a smaller increase in accommodation costs.

Ms Sheana Yue, an economist at Oxford Economics, said the month-on-month decline in the core inflation numbers suggests some loss of underlying demand in the economy.

She said Singapore’s exports – a measure of external demand – have started to weaken on payback from the front-loading of orders to get ahead of higher US tariffs. Exports also face a tougher future with higher tariffs having taken effect in August.

“Given the sizeable exposure of the economy to the external sector, a feedthrough to the domestic economy is almost certain.”

In July’s report, MAS and MTI noted that the prices of retail and other goods fell 0.5 per cent after staying unchanged in June. Lower prices of clothing and footwear, and household appliances contributed to the decline.

Mr Khoon Goh, head of Asia research for ANZ, said the strong Singapore currency is keeping imported inflation in check. At the same time, the retail sector is facing stiff competition, which is hurting prices, he added.

DBS Bank senior economist Chua Han Teng noted that companies are not passing on higher costs to consumers, amid muted domestic demand.

Among other price categories, the cost of electricity and gas fell further, by 5.6 per cent year on year in July, due to a larger decline in electricity prices. 

Accommodation costs rose at a slower pace of 0.5 per cent because of smaller increases in housing maintenance and repair costs and housing rents. 

Two categories, however, registered bigger price increases. 

Private transport inflation ticked up to 2.1 per cent in July due to a steeper rise in car prices.  

Food inflation edged higher to 1.1 per cent in July, from 1 per cent in June, as the prices of food services and non-cooked food rose at a faster pace. 

MAS and MTI said Singapore’s imported inflation should remain moderate in the near term as oil prices have continued to ease in recent weeks, while the increases in food commodity prices should be contained.

They reiterated their statement that although the ongoing trade conflicts could be inflationary for some economies, their impact on Singapore’s import prices is likely to be offset by the disinflationary drags exerted by weaker global demand. 

At home, slower nominal wage growth and continuing increases in labour productivity should contribute to a moderation in unit labour costs, said MAS and MTI. At the same time, enhanced government subsidies for essential services will continue to dampen services inflation, they added.

ANZ’s Mr Goh said there was a notable shift in MAS’ and MTI’s commentary. They now expect unit labour costs to moderate. This was in contrast to June’s statement where they said unit labour costs were expected to rise gradually.

However, Mr Goh thinks Singapore is getting close to the bottom of the inflation cycle. ANZ expects inflation to start to rise from the fourth quarter onwards as favourable base effects start to fade.

DBS’ Mr Chua expects inflation to be subdued for the rest of 2025 due to “modest imported and domestic cost pressures”.

He said that ongoing significant external uncertainties posed by geopolitical and tariff tensions warrant a cautious approach from Singapore.

Mr Chua added that this was likely why MAS kept its monetary policy unchanged during its July meeting, so it has the ammunition to respond to any unexpected future negative shocks.

Reflecting this uncertainty, MAS and MTI said the inflation outlook in the quarters ahead is subject to both upside and downside risks.

The upside risks to inflation will come from “geopolitical shocks” which “could lift imported energy and shipping costs abruptly”, they said.

However, “should global and domestic growth be more hesitant and weaker than anticipated, core inflation could stay low for longer”.

MAS and MTI stuck to their forecasts that core and overall inflation will average 0.5 per cent to 1.5 per cent in 2025.