SINGAPORE - Spikes in energy and agriculture prices account for more than two-thirds of core inflation pressures in Singapore between June 2021 and June 2022.

This was one of the findings of a special report by the Monetary Authority of Singapore (MAS) released on Thursday.

The report also looked at the impact of rising energy and agriculture prices on inflation in different sectors. 

It found that Singapore’s manufacturing and transport services are heavily affected by sudden jumps in energy prices.

For example, a 92 per cent increase in global energy prices will push up costs in the manufacturing sector by 6 percentage points and those in the transport services sector by 13.2 percentage points.

On the impact of rising agriculture prices, the MAS report unsurprisingly found that food-related sectors – food and beverage manufacturing, accommodation and food services – take the biggest hit.

A 23 per cent increase in agriculture prices worldwide, for example, will lift prices for the F&B manufacturing sector by 1.6 percentage points.

Most price pressures come through indirect channels from abroad, as supply chains supporting Singapore’s different industries are largely located overseas.

Therefore, the Republic’s heavy reliance on imports for economic activities increases its exposure to global economic cost shocks.

To control imported inflation, the MAS has tightened monetary policy five times since October 2021, allowing the Singdollar to appreciate against a basket of currencies.

A stronger Singdollar means each dollar can now be exchanged for more in foreign currency, helping an individual or a company to buy imports with less money, resulting in relatively cheaper imports.

“The cumulative restraining effects of MAS’ moves since October last year are estimated to dampen core inflation by an average of 1.5 percentage points each year over 2022 to 2023,” MAS said.

MAS added that it pushed forward with tightening monetary policy even though global growth prospects have deteriorated, saying that this would help ensure medium-term price stability as a basis for sustainable growth in the economy.

Energy and food commodity prices have risen globally due to multiple reasons.

Economies were recovering from the Covid-19 pandemic and that led to a rebound in demand, which pushed up oil and food consumption.

At the same time, oil cartel Opec+, led by Saudi Arabia, pledged to cut oil production, threatening to send prices higher.

The ongoing conflict between Russia and Ukraine has further disrupted energy and food supply chains, compounding price increases for economies globally.

Energy- and food-derived products account for 10.7 per cent of Singapore’s consumer price index basket.

Energy-derived products refer to fuels and lubricants, electricity and gas, while food-derived products refer to non-cooked food.

On a year-on-year basis, these items contributed to one-quarter of both core inflation (4.4%) and headline inflation (6.7%) in June.