Singapore core and headline inflation eases in May, rising 4.7 per cent and 5.1 per cent, respectively

SINGAPORE - Core consumer prices in Singapore rose at a slower pace in May and hit their lowest levels since mid-2022 on the back of a fall in food and retail inflation, in a sign that price pressures may ease further throughout the year.

Core consumer prices, which exclude private transport and accommodation costs, and so reflect the expenses of Singapore households more accurately, rose 4.7 per cent year on year in May – the first time they fell below the 5 per cent mark since July 2022, with the figure matching a Reuters poll of economists. 

The headline consumer price index, or overall inflation, went up 5.1 per cent in May – the lowest rate since early 2022 – on the back of a fall in inflation for private transportation, services and food. It had risen by 5.7 per cent in April. The figure in May was lower than economists’ forecast of a rise of 5.5 per cent.

Official projections for the year remain unchanged at between 5.5 per cent and 6.5 per cent for headline inflation, and between 3.5 per cent and 4.5 per cent for core inflation. These estimates take into account the

goods and services tax hike from 7 per cent to 8 per cent

from Jan 1.

The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry on Friday said core inflation is expected to moderate further in the second half of 2023, as imported costs are reduced and the current tightness in the domestic labour market eases.

Mr Alex Holmes, senior economist at Oxford Economics, said the month-to-month rise in core prices has been steadily trending downwards.

This suggests that the underlying price pressures are moderating, he said. “If this trend continues, we should see further declines in the year-on-year rate in the months ahead.”

Food prices, which had been a big driver of inflation early in 2023, are falling due to lower global food commodity prices, Mr Holmes said, adding that “there’s more food price disinflation to come over the months ahead”.

He is also expecting accommodation inflation to soften soon as a flood of residential property completions come onto the market, ramping up supply and driving down lease prices.

DBS Bank economist Chua Han Teng said core inflation is likely to remain on an easing trend in the next six months, but added it would be sticky on the way down and would be elevated compared with pre-pandemic averages.

Meanwhile, Mr Barnabas Gan, senior economist at RHB Bank Singapore, said inflation momentum will ease further and maintained his forecast for Singapore’s headline and core inflation at 4 per cent year on year in 2023.

Given the cooling of sequential price pressures, Mr Brian Tan, Barclays’ senior regional economist, believes MAS will not be tightening monetary policy in 2023.

Inflation in all categories but electricity and gas fell.

Electricity and gas inflation rose to 3.3 per cent in May from 2.7 per cent in April, due to a larger rise in electricity costs.

Private transport inflation clocked the steepest month-on-month decline in May, from 10.4 per cent to 7.2 per cent. The easing came as car prices went up at a slower pace and petrol prices saw a sharper fall.

Food inflation dipped to 6.8 per cent in May, due to lower inflation for food services.

Services inflation eased to 3.9 per cent, led by smaller increases in holiday expenses and point-to-point transport services costs.

Accommodation inflation in May was 4.7 per cent, down slightly from 4.9 per cent in April. This was because rents for housing rose at a slower pace.

Inflation for retail and other goods edged down to 2.8 per cent as the prices of clothing, footwear and household durables recorded smaller hikes.

The Singapore data comes amid mounting pressure on central bankers around the world as inflation keeps creeping up.

The

Bank of England on Thursday moved to raise interest rates

as consumer prices gain, while the United States Federal Reserve’s chair Jerome Powell on Wednesday told a congressional hearing that it might make sense to hike interest rates but to do so at a more moderate pace.