Singapore core inflation hits 5.3% in September, close to 14-year high

Food inflation climbed to 6.9 per cent as the prices of both food services and non-cooked food rose at a faster pace. PHOTO: ST FILE

SINGAPORE — Consumer prices in Singapore continued to climb and reached a fresh 14-year high in September, on the back of higher costs of food, services and other goods.

Core inflation, which excludes costs of private transport and accommodation and reflects the expenses of Singapore households more accurately, hit 5.3 per cent year on year. This was higher than the 5.1 per cent rate in August, and marked its highest level since it touched 5.5 per cent in November 2008.

September’s headline consumer price index (CPI) or overall inflation came in at 7.5 per cent, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) on Tuesday. The percentage was unchanged from August and matched the 14-year high in June 2008.

Inflation has been on the rise amid uncertainties from geopolitical tensions, higher global commodity prices and supply chain disruptions.

MAS has tightened its monetary policy five times since October 2021 to support a stronger Singapore dollar and dampen imported inflation.

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RHB Singapore senior economist Barnabas Gan forecasts that the central bank will further tighten monetary policy in its next scheduled statement in April as high core inflation is expected to last until next year.

MAS and MTI had also flagged risks such as unexpected shocks to global commodity prices and more persistent-than-expected external inflation, he noted.

Maybank economists Chua Hak Bin and Lee Ju Ye said the tight labour market has increased wage pressures even as global energy and food prices have eased.

“The wage-price spiral may intensify in the coming quarters, with the Progressive Wage Model expanded to cover food services, waste management, and occupational sectors such as administrators and drivers from March 1, 2023,” added Dr Chua and Ms Lee in a note.

Barclays senior regional economist Brian Tan estimates that core inflation rose from 3.7 per cent to 4 per cent in September, excluding uncooked food, energy and travel-related components. This reflects stronger demand-pull inflation pressures, he said.

September’s figures were in line with estimates by analysts in a Bloomberg poll. They were buoyed by food inflation, which came in at 6.9 per cent year on year, compared with 6.4 per cent in August, as the prices of both food services and non-cooked food rose at a faster pace.

Services inflation also gained steam to hit 4 per cent in September, up from 3.8 per cent in August, due to larger increases in the cost of point-to-point transport services and holiday expenses. Meanwhile, there was a smaller decline in telecommunication services fees.

When it came to retail and other goods, inflation edged up from 2.9 per cent in August to 3.1 per cent in September. This was because of a faster pace of increase in the prices of telecommunication equipment, medicines, health products and other personal care products.

Electricity and gas inflation was unchanged at 23.9 per cent compared with August.

Accommodation costs rose by 4.9 per cent in September, up from August’s 4.7 per cent, due to a faster pace of increase in housing rents. However, private transport inflation moderated from 24.1 per cent in August to 22.3 per cent in September due to a slower pace of increase in car and petrol prices.

MAS and MTI said that globally, demand conditions in major economies have softened while supply chain frictions have continued to ease. “Prices of energy and food commodities have come off their peaks from earlier in the year, but remain high given ongoing supply constraints. In addition, labour markets in major advanced economies are still tight, keeping wage pressures strong.

“Accordingly, across a range of goods and services, Singapore’s imported inflation is expected to remain significant for some time,” they said.

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Labour costs at home are expected to rise further in the near term alongside robust wage growth, said MAS and MTI. “At the same time, the cost of utilities is likely to remain elevated. Firms are expected to continue to pass through accumulated import, labour and other business costs to consumer prices amid resilient demand.

“Car and accommodation cost increases are also anticipated to stay firm in the quarters ahead amid tight COE (certificate of entitlement) quotas for cars and strong demand for rental housing respectively.”

Core inflation is expected to remain high in the next few quarters before slowing in the second half of next year as the tight domestic labour market eases and global inflation moderates, said MAS and MTI.

Core inflation was initially expected to have peaked around the middle of this year and stabilised in the second half of the year but that timeline has now been pushed into 2023.

Overall inflation is expected to average around 6 per cent for the full year, while core inflation is projected to come in around 4 per cent, according to MAS’ latest forecasts on Oct 14.

For 2023, overall inflation is forecast at between 5.5 per cent and 6.5 per cent, with core inflation between 3.5 per cent and 4.5 per cent. These estimates take into account the upcoming increase in the goods and services (GST) tax. 

MAS and MTI said on Tuesday: “There are upside risks to the inflation outlook, including from fresh shocks to global commodity prices and more persistent-than-expected external inflation.”

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