Core inflation decreases, but risks remain as global pressures rise.
Economists predict that the Monetary Authority of Singapore (MAS) will likely maintain its current monetary policy stance during its October meeting. This comes after data from the Ministry of Trade and Industry (MTI) and MAS revealed that inflation continued to ease in August, marking the fourth consecutive month of cooling. The headline consumer price index (CPI) dropped to 4% year-on-year from July’s 4.1%, driven by decreases in core and accommodation inflation. Core inflation, which excludes accommodation and private transport, also fell to 3.4% from 3.8% in July.
Despite these positive signs, economists caution that inflation remains high compared to pre-pandemic levels. The recent easing in core CPI could prompt some to anticipate a shift in MAS’s monetary policy, with UOB’s senior economist Alvin Liew suggesting that MAS might slightly reduce the nominal effective exchange rate (S$NEER) slope. However, both UOB and other analysts, including Tamara Henderson of Bloomberg and Selena Ling from OCBC, argued that easing may be premature due to persistent domestic cost pressures, such as rising labor costs and increasing oil prices.
Private transport inflation rose in August, and the authorities also pointed to the risk of rising oil prices, exacerbated by cuts in production by OPEC and its allies. Economists warned that these rising energy costs, along with potential adjustments in electricity and water tariffs, could place upward pressure on inflation in the coming months. Despite these risks, the overall outlook for inflation remains more moderate than in 2022, with economists such as DBS’s Chua Han Teng expecting core inflation to continue moderating.
In summary, while the latest inflation figures show signs of easing, economists remain cautious about the impact of global economic pressures and domestic cost factors. MAS is expected to adopt a wait-and-see approach, keeping its policy unchanged for now.
