Inflation in Singapore hits 13-year high, expected to continue rising

SINGAPORE - Consumer prices in Singapore continued to climb in July and core inflation hit a 13-year high, with economists saying respite is still months away.

Core inflation, which excludes costs of private transport and accommodation and reflects the expenses of Singaporean households more accurately, hit 4.8 per cent year on year, up from 4.4 per cent in June. This marks its highest level since it touched 5.5 per cent in November 2008.

The July figure, slightly above the Bloomberg poll of 4.7 per cent rise, climbed on the back of stronger price hikes in food, electricity and gas.

The rise reflects the higher electricity and gas tariffs for Q3 due to higher fuel costs, said CIMB economist Song Seng Wun. He added that spot prices of commodities or cooking oil “have passed their peak”.

The headline consumer price index (CPI) or overall inflation for July came in at 7 per cent - the highest in 14 years since it hit 7.5 per cent in June 2008. 

The rise was led by increases in private transport and accommodation. July’s CPI matched Bloomberg’s estimates but was higher than the 6.7 per cent in June. 

Oxford Economics’ Alex Holmes noted that the rise in CPI had slowed but core inflation continued to climb strongly. 

While there will be a small respite due to the recent pullback in global commodity prices, underlying price pressures are likely to stay strong due to a tight labour market and strong nominal wage growth, he said.

Mr Holmes expects core inflation to pick up in the coming months to above 5 per cent. 

Deputy Prime Minister Lawrence Wong last week said inflation is projected to peak in the next two to four months before easing. But he cautioned that the extent of the easing as well as where the new inflation rates will stabilise at are big uncertainties.

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Said Mr Holmes: “While inflation should peak in Q4, it is only likely to come down slowly thereafter, with a fresh upward boost from the goods and services tax (GST) rise in January 2023.”

OCBC Bank’s chief economist Selena Ling estimates that inflation “may only peak closer to October this year”.

She said that the main worry for people is that the accelerating inflation could erode their purchasing power, unless wages grow more than nominal inflation rates. 

“But actually in Q1 this year, resident wage growth was 7.8 per cent year on year, suggesting that wages are adjusting to the higher inflationary environment, albeit it may be uneven across different industries or jobs,” Ms Ling added.

Data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) released yesterday showed that food inflation came in at 6.1 per cent in July, lifted by higher prices for food services and non-cooked food.

Electricity and gas inflation surged to 24 per cent last month on the back of bigger increases in tariffs for both.

Accommodation inflation came in at 4.6 per cent due to faster pace of increase in housing rents, while private transport costs rose to 22.2 per cent led by a stronger pick up in car prices.

Services inflation crept up slightly to 3.5 per cent as the costs of outpatient services, airfares and recreational and cultural services recorded larger increases. For retail and other goods, inflation came in at 2.8 per cent, lower than 3.1 per cent in June. 

Both MAS and MTI said inflationary pressures will remain elevated in the months ahead.

For the full year, the headline inflation forecast remains unchanged at between 5 per cent and 6 per cent, while core inflation is projected to average between 3 per cent and 4 per cent. 

This article was first published in The Straits Times. Permission required for reproduction.