Singapore inflation slows to three-year low in June

Singapore inflation eased in June, official figures showed on Tuesday, cooled by lower prices within the Retail & Other Goods segment. 

“The June inflation numbers were below market expectations,” Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, said in a note on Tuesday. 

The Monetary Authority of Singapore’s core inflation figure, which excludes accommodation and private transport, for June came in at 2.9% compared to a year before. This was lower than May’s inflation print of 3.1%.  

There was no change to the core CPI on a month-on-month basis. 

The cooling of the core CPI print was helped by Retail & Other Goods inflation slowing, particularly the prices of clothing & footwear and medicines & health products.  

Central banks closely monitor core CPI to inform monetary policy decisions. A stable core CPI helps central banks decide whether to raise or lower interest rates to control inflation or stimulate economic growth. 

The headline figure, which includes accommodation and private transport, fell to 2.4% year-on-year in June, compared to 3.1% in May. The headline CPI provides a complete picture of overall inflation. 

“This was the slowest rise in monthly year-over-year inflation in three years and was led by a deflation in Private Transport prices, as well as a slowdown in Retail, Services and Accommodation inflation,” said Mobeen.  

On a month-on-month basis, the headline CPI decreased by 0.2%. 

Analysis

Kelvin Wong, a senior market analyst at Oanda, told Diplomatic Network (Asia) in an interview on Wednesday that decelerating inflation is being reflected globally.

“Firstly, the deceleration of core inflationary trends in Singapore has been reflected globally as well such as in the Eurozone, the UK & the US,” Wong said.

“Secondly, there has been no clear US dollar strength resurgence as the stance of the Fed is more dovish (start of an interest rate cut cycle rather than reinstating a hike cycle) which has led the USD/SDG to trade within a tight range of 1.3597 and 1.3438 in June, below April/May high of 1.3670; which reduced imported inflation in Singapore.”

Cooling inflation could bode well for consumer sentiment.

“Overall, if such deceleration in the inflationary trend continues, it is likely to boost consumer sentiment via lower cost of necessities and an increase in real wages,” Wong said.

Deep dive 

Private transport prices deflated by 0.7% year-on-year in June, compared to inflation of 2.8% in May.  

“This was due to car and motorbike prices declining and the petrol price increase slowing down,” Mobeen said.  

Retail & Other Goods inflation cooled to 0.5% year-on-year in June from 1.5% in May.  

Services inflation slowed to 3.4% year on year in June, compared with 3.6% in May. This was due to the pace of increase in hospital services and holiday expenses slowing down. 

Accommodation inflation edged down to 3.3% year-on-year, compared to 3.4% in May, as housing rents rose at a slower pace. 

Food inflation was broadly unchanged at 2.8% year-on-year in both June and May. Similarly, the Electricity & Gas segment was unchanged at 6.9% year-on-year.  

Domestic factors

“On the domestic front, increases in unit labor costs have slowed in tandem with the cooling labor market. Nonetheless, businesses are likely to continue passing through the earlier increases in labor and other business costs to consumer prices, albeit at a reduced pace,” MAS said.  

This means that, as the job market slows down and becomes less competitive, the rapid increase in the cost of labor per unit of output has also decelerated. However, businesses are still likely to pass on the higher costs they incurred earlier—both from labor and other expenses—to consumers. 

This means that consumer prices will continue to rise but at a slower rate than before. 

Looking ahead 

Risks to the inflation outlook are still present. 

“Risks to the inflation outlook remain. Fresh geopolitical shocks, adverse weather events, and renewed transportation disruptions around the world could put upward pressure on global energy and food commodity prices, as well as shipping costs. Domestically, a stronger-than-expected labor market could lead to a re-acceleration of wage growth,” said MAS. 

The MAS maintained its core inflation projection at 2.5% to 3.5% for 2024, which would be down from 4.8% in 2023. 

S&P Global Market Intelligence projects the average 2024 inflation rate to fall around 2.6% year-on-year.  

“S&P Global Market Intelligence expects the overall consumer price index inflation to come down marginally faster than anticipated… This decline will mostly come from the continued slowdown in private transport inflation and easing accommodation inflation due to an expected increase in housing completions,” Mobeen said.  

“Core inflation is also expected to ease from the second half of 2024 into 2025 as import pressures decrease and labor market tightness eases.” 

Mobeen noted that upside inflation risks still persist, which could lead to changes in the outlook.

*Update 25/07/2024: inclusion of quotes from Kelvin Wong.