External shocks fuelling price pressures

The Russian invasion of Ukraine, which started on Feb 24, has intensified price pressures which are now rippling through the Singapore economy, as they have elsewhere. With large quantities of Russian oil exports having been taken off the market because of economic sanctions, energy prices have soared. Freight charges have gone up because of higher fuel costs and blockages of key transit routes. And the interruption in supplies of wheat and corn, of which Russia and Ukraine are among the world's largest exporters, has pushed up food prices. The collective impact of these developments is already being reflected in higher prices for food, petrol and utilities, which have affected businesses including food importers, hawkers, taxi, ride-hailing and logistics companies, retailers and manufacturers. The renewed spread of the Covid-19 pandemic in China, which has led to mass lockdowns, including in key production and export hubs such as Shenzhen, will add to price pressures, especially of manufactured goods, as supply chains get disrupted again and congestion at ports intensifies.

In a joint media statement on Feb 23, the Monetary Authority of Singapore and the Ministry of Trade and Industry reported that Singapore's core inflation - which excludes private transport and accommodation costs - hit 2.4 per cent, the highest level since September 2012. They forecast that it could rise further to 3 per cent by mid-year before falling back. But they did flag the possibility of upside risks from pandemic-related and geopolitical shocks. Those risks have now materialised, in the form of both Russia's war on Ukraine and China's new Covid-19 outbreak. Although it is unclear how long these external shocks will persist, projections for inflation may need to be revised.