24-7-2023 (SINGAPORE) Singapore’s core inflation continued its downward trend, dropping to 4.2 per cent year-on-year in June, according to official data released on Monday (Jul 24).
The core inflation had reached a 14-year high of 5.5 per cent in February and January this year, before gradually declining to 5 per cent in March and April, and further to 4.7 per cent in May.
The decline in June was primarily driven by lower inflation in food and services, as reported by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).
Core inflation excludes accommodation and private transport costs from its calculation.
Overall inflation also eased to 4.5 per cent year-on-year in June, down from 5.1 per cent in the previous month.
MAS and MTI stated, “This was driven by a decline in private transport inflation, in addition to the fall in core inflation.”
In June, all sectors experienced a decline in inflation. Food inflation eased to 5.9 per cent from 6.8 per cent in May, as prices of non-cooked food and prepared meals rose at a slower pace.
Services inflation fell from 3.9 per cent in May to 3.6 per cent in June, due to a slower increase in holiday expenses and airfares.
Inflation for retail and other goods also edged down to 2.7 per cent in June from May’s 2.8 per cent. This was attributed to smaller increases in prices of personal care products, medicines, and health products.
Electricity and gas inflation decreased to 3.1 per cent in June, from 3.3 per cent in May, due to a smaller rise in electricity costs.
Accommodation inflation also declined from 4.7 per cent to 4.5 per cent, as housing rents rose at a slower pace.
Private transport inflation fell to 5.8 per cent in June from 7.2 per cent in May, mainly due to a steeper drop in petrol prices and a smaller increase in car prices.
The outlook for inflation indicates that global supply chain frictions, energy, and food commodity prices have moderated. The authorities also note that consumer price inflation in Singapore’s major trading partners is on a downward trend, leading to a decline in prices of imported goods year-on-year.
Locally, unit labour costs are expected to rise in the near term, though at a slower pace. Businesses may continue to pass on higher labour costs to consumer prices, but more gradually given the slowdown in domestic economic activity.
MAS and MTI project that core inflation will moderate further in the second half of the year, as imported costs decline from levels a year ago and the tightness in the domestic labour market eases.
With an increase in Certificate of Entitlement (COE) quota and the supply of housing units available for rental, inflation for private transport and accommodation is expected to moderate over the year.
For 2023, headline inflation is projected to average between 4.5 per cent and 5.5 per cent, down from the previous projection of 5.5 per cent to 6.5 per cent.
Core inflation is projected to average between 3.5 per cent and 4.5 per cent.
Excluding the transitory effects of the 1 percentage point increase in the Goods and Services Tax (GST), headline inflation is expected to be at 3.5 to 4.5 per cent, and core inflation at 2.5 to 3.5 per cent.
MAS and MTI highlight that upside risks remain, particularly from fresh shocks to global commodity prices and a more persistent-than-expected tightness in the domestic labour market. At the same time, there are also downside risks, such as a sharper-than-projected downturn in the advanced economies, which could induce a general easing of inflationary pressures.
