SINGAPORE - Prices continued their upwards march, with the rising costs of food, electricity and gas driving core inflation to a 13-year high last month.
Disruptions to the supply chain, among other factors, pushed May’s core inflation - which strips out accommodation and private transport costs and is more representative of the bills the average Singaporean pays - to 3.6 per cent.
This is the highest core inflation rate that Singapore has faced since December 2008, when it hit 4.2 per cent.
This is largely because the Republic has managed to keep prices in check for several years and even its April inflation rate of 3.3 per cent was a 10-year high. In comparison, inflation in the United States has hit 8.6 per cent.
Prices are expected to continue rising over the coming months, despite the Monetary Authority of Singapore (MAS) tightening its monetary policy three times since last October to tame inflation.
A tighter policy strengthens the Singapore dollar and could hit growth as local exports become less competitive.
Economists surveyed by MAS have already lowered their forecast for this year’s growth from 4 per cent to 3.8 per cent.
With private transport and accommodation inflation expected to stay firm in the near term, headline inflation - which hit 5.6 per cent in May - will pick up more than core inflation this year, said MAS and the Ministry of Trade and Industry (MTI).
They expect core inflation to average 2.5 per cent to 3.5 per cent for the year, and headline inflation to sit between 4.5 per cent and 5.5 per cent.
To blunt the impact of rising prices on Singapore households and businesses, a $1.5 billion support package was announced on Tuesday (June 21).
But there could be more pain ahead. Some analysts said that a further tightening of monetary policy to rein in prices cannot be ruled out.
Ms Selena Ling, head of research and strategy at OCBC Bank, said: “Nothing suggests a reprieve is near – apart from some relaxation of China’s Covid-19-related restrictions, the Russia-Ukraine war and global supply chain bottlenecks have not resolved yet.”
Senior regional economist at Barclays Bank Singapore, Mr Brian Tan, expects MAS to tighten its monetary policy in October or even earlier.
While this may hit growth, a stronger Singapore dollar will likely tame the prices of food and energy as Singapore imports most of them.
“For example, strengthening the currency by 2 per cent means that imported goods would become cheaper by 2 per cent. So when it comes to imported inflation, strengthening the currency can have quite a direct impact,” Mr Tan said.
Food inflation hit 4.5 per cent in May, up from 4.1 per cent in April, and Nomura Holdings is predicting that it could hit 8.2 per cent in the second half of the year.
Electricity and gas prices surged by 19.9 per cent year on year in May as the average prices of electricity plans offered by retailers rose at a faster pace.
Holiday expenses and rising taxi and private-hire car fares pushed up services inflation to 2.6 per cent.
Retail and other goods inflation came in higher at 1.8 per cent as the prices of clothing, footwear and personal care products rose.
Housing rents rose, pushing up accommodation inflation to 4 per cent and contributing to the rise in headline inflation.
Private transport inflation rose to 18.5 per cent as petrol costs spiked.
As the labour market remains tight, wages could rise and this, in turn, could raise business costs and consumer prices further. Core inflation could stay well above its historical average through the year, said MAS and MTI.
External factors, such as supply chain disruptions caused by the Russia-Ukraine conflict, could add to inflationary pressures, they added.
In the near term, crude oil prices and the prices of food and other commodities are also expected to remain high.