S’pore core inflation slows to 3% in September, but overall inflation up after record COE prices

SINGAPORE – Core consumer prices in Singapore may have risen at a slower pace for a fifth straight month in September, but economists say uncertainty looms over the inflation outlook.

They noted that while inflation figures in Singapore are stabilising, the Middle East conflict could push energy prices up. A sharper global slowdown could also trigger greater easing of price pressures.

Official data on Monday showed that core inflation, which excludes private transport and accommodation costs to better reflect the expenses of Singapore households, rose 3 per cent year on year in September. This was lower than the

3.4 per cent in August.

September’s core inflation rate represents an 18-month low and came in below Bloomberg’s median estimate of 3.1 per cent.

However, overall or headline inflation edged up to 4.1 per cent year on year in September, slightly higher than the 4 per cent in August.

Record certificate of entitlement (COE) prices

drove up private transport inflation, which more than offset the decline in core and accommodation inflation.

On a month-on-month basis, which represents how much momentum there still is in prices, core consumer prices crept up 0.1 per cent in September on account of higher costs of food and services.

At the same time, headline inflation rose by 0.5 per cent month on month, mainly due to higher private transport costs.

Core inflation is expected to ease further to between 2.5 per cent and 3 per cent year on year by December, and slow to an average of between 2.5 per cent and 3.5 per cent for the full year in 2024, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said on Monday, reiterating forecasts released on Oct 13.

They added that headline inflation is expected to average around 5 per cent for full-year 2023, and 3 per cent to 4 per cent for 2024.

“In early 2024, core inflation is expected to be impacted by the increase in the goods and services tax (GST) rate as well as seasonal effects. However, core inflation should resume a broadly moderating trend over 2024, as import cost pressures decline and tightness in the domestic labour market continues to ease,” MAS and MTI said.

They added that headline inflation is likely to rise further in the coming months as a result of higher COE premiums.

“Nonetheless, private transport inflation should slowly moderate over the course of next year alongside an expected increase in COE quotas. Accommodation inflation is also projected to ease as the supply of completed housing units increases,” they said.

Maybank senior economist Chua Hak Bin said the downtrend in core inflation here has largely run its course on the back of falling import prices and the easing labour market.

“We expect core inflation to stabilise near current levels, given the planned GST and carbon tax increases in January 2024, and hikes in other administrative prices such as water and public transport fares,” he said.

Dr Chua forecasts core inflation to average 2.8 per cent in 2024, above historical norms but well below the 4.2 per cent he predicts for 2023.

He said energy prices might continue to climb if the Israel-Hamas war broadens and intensifies, while higher COE premiums might spill over into other core price segments such as general transportation costs for goods.

OCBC chief economist Selena Ling said inflation dynamics are still in a state of flux, given the latest developments in the Middle East, which adds increased uncertainty to energy prices.

“We raise our 2023 headline inflation forecast from 4.5 per cent to 4.8 per cent in anticipation of elevated COE premiums sustaining for the rest of this year, but keep our core inflation unchanged at 4.1 per cent,” Ms Ling said.

For 2024, she said OCBC’s headline and core inflation forecasts remain at 3.4 per cent and 3.1 per cent respectively.

MAS on Oct 13

left its monetary policy settings unchanged in October

as it forecast that inflation in Singapore would continue to ease. On Monday, MAS and MTI noted the upside risks to inflation from fresh shocks to global energy and food commodity prices due to geopolitical conflicts and adverse weather events.

Barclays senior regional economist Brian Tan said economic growth is likely to remain subpar in 2024, so MAS is unlikely to resume tightening of its monetary policy. “We believe MAS will be reluctant to ease over the next six months, with price levels still high and another GST hike looming, lest this inflames still-elevated inflation expectations.”

Ms Ling said monetary policy here is likely to remain in an extended pause mode, at least for the January 2024 review.

Monday’s data showed that private transport inflation rose the most, jumping to 8.5 per cent in September from 6.3 per cent in August. This was because of the faster pace of hikes in car and petrol prices.

COE prices for cars and the Open category

hit record highs in September,

spurred by motor dealers rushing to meet year-end targets and take advantage of current tax rebates for electric cars.

Retail and other goods clocked the steepest decline in inflation on a month-on-month basis. Their inflation dropped to 0.9 per cent in September from 2 per cent in August.

Food inflation dropped to 4.3 per cent, from 4.8 per cent in August, as the prices of non-cooked food and prepared meals rose at a slower pace. 

Accommodation inflation edged down to 4.3 per cent from 4.4 per cent as housing rents moderated.

Electricity and gas inflation remained unchanged. Their costs fell 1.4 per cent year on year in September as a smaller decline in electricity prices was broadly offset by a steeper fall in gas prices.

Services inflation also saw no change, staying at 3.1 per cent, as a larger increase in the cost of telecommunication services was offset by a smaller pickup in holiday expenses.