Singapore Core Inflation Higher than Expected
Inflation concerns still hovering
After a slight easing in March, core inflation in Singapore remained unchanged in April. This was primarily due to higher expenses for holidays and airfares. Analysts attribute the persistent inflation to strong consumer demand and the high purchasing power of Singaporeans.
In April, core consumer prices, which provide a more accurate reflection of Singaporean households' expenses by excluding private transport and accommodation costs, increased by 5% compared to the same period last year. This figure remained unchanged from March and exceeded the Bloomberg survey forecast of 4.7%. However, it is still lower than the peak of 5.5% recorded in February, which was the highest since November 2008.
The rise in core inflation for April was driven by increased inflation in travel-related services, while lower price increases in electricity and gas, food, and retail goods partially offset the overall increase. According to OCBC Bank's chief economist Selena Ling, it will be challenging for core inflation to ease significantly due to the relatively tight domestic labor market and strong consumer spending.
The headline consumer price index, which includes overall inflation, rose to 5.7% in April, primarily driven by higher inflation for services and private transport. This figure eased slightly to 5.5% in March. Senior economist Alex Holmes from Oxford Economics noted that the temporary rise in transport prices, influenced by certificate of entitlement prices, is expected to ease in May. However, concerns remain regarding steep price increases in clothing, footwear, and recreation services.
The official projections for the year maintain a range of 5.5% to 6.5% for headline inflation and 3.5% to 4.5% for core inflation. These estimates take into account the goods and services tax hike from 7% to 8% implemented on January 1.
The Monetary Authority of Singapore and the Ministry of Trade and Industry acknowledge both upside risks, such as shocks to global commodity prices and persistent labor market tightness, and downside risks, including a sharper-than-expected economic downturn in advanced economies that could alleviate inflationary pressures.
In April, electricity and gas inflation experienced a significant decline compared to March. The prices rose by 2.7%, much lower than the previous 12.2% surge. This was attributed to smaller increases in electricity costs and gas tariffs. Food inflation also dropped to 7.1%, primarily due to slower price hikes in non-cooked food and prepared meals. Inflation for retail and other goods eased to 2.9% as prices rose at a slower pace.
DBS economist Chua Han Teng highlighted that core inflation moderated in April compared to the peaks in January and February but remained elevated, particularly in the food category. The impact of the one percentage-point GST hike and wage pressures from a tight labor market contributed to sustained food inflation.
Private transport inflation increased the most, rising to 10.4% in April from 8.6% in March, mainly due to steeper car prices. Services inflation also saw an upward trend, reaching 4.3% in April, driven by higher airfares and increased holiday expenses. Accommodation inflation slightly rose to 4.9% as a smaller increase in housing rentals was offset by a larger rise in housing maintenance and repair costs.
Source: MAS, ST Times
