Singapore's core inflation eases slightly to 5.1% in October; expected to stay elevated in next few quarters

SINGAPORE: Singapore's core inflation eased slightly to 5.1 per cent in October, the first time it has slowed since February this year.

The moderation in core inflation in October from 5.3 per cent in September was driven by smaller increases in the prices of electricity and gas, retail, and other goods and services, official data showed on Wednesday (Nov 23). 

Core inflation excludes accommodation and private transport costs. 

The headline consumer price index, or overall inflation, was 6.7 per cent year-on-year in October, lower than the 7.5 per cent in the preceding month as private transport inflation eased, alongside the moderation in core inflation. 

"Core inflation is projected to stay elevated in the next few quarters before slowing more discernibly in H2 2023 as the current tightness in the domestic labour market eases and global inflation moderates," said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI). 

For 2022 as a whole, overall inflation is expected to average about 6 per cent and core inflation about 4 per cent. 

Overall inflation eased on the back of lower inflation across all broad categories, except for accommodation and food. 

Private transport inflation fell to 17.3 per cent year-on-year in October on account of a slower pace of increase in car and petrol prices. 

Food inflation edged up to 7.1 per cent in October due to higher inflation for food services.

Meanwhile, electricity and gas inflation fell to 19 per cent year-on-year in October from the 23.9 per cent in the preceding month due to smaller increases in electricity and gas tariffs. 

Retail and other goods inflation dipped to 2.6 per cent in October, as prices of clothing and footwear, as well as other personal care products rose at a slower pace. 

Services inflation edged down to 3.9 per cent in October as holiday expenses, as well as recreational and cultural services costs recorded smaller increases. 

Inflation for accommodation unchanged from September, at 4.9 per cent, as the pace of increase in housing rents held steady. 

In their outlook, the authorities said the demand conditions in major economies have softened while supply chain frictions have continued to ease. 

"Prices of energy and food commodities have come off the peaks reached earlier in the year, but remain high given ongoing supply constraints," said MAS and MTI.

Additionally, labour markets in major advanced economies are still tight, keeping wage pressures strong. Singapore’s imported inflation across a range of goods and services is expected to remain significant for some time.

On the domestic front, unit labour costs will increase further in the near term alongside robust wage growth. At the same time, the cost of utilities is likely to remain elevated, said MTI and MAS. 

Firms are expected to continue to pass through accumulated import, labour and other business costs to consumer prices amid resilient demand.

Car and accommodation cost increases are also anticipated to stay firm in the quarters ahead amid tight COE quotas for cars and strong demand for rental housing, respectively.

For 2023, taking into account all factors including the increase of Goods and Services Tax (GST), Singapore's headline inflation is projected to average 5.5 per cent to 6.5 per cent, and core inflation to average 3.5 per cent and 4.5 per cent. 

Excluding the transitory effects of the GST hike, headline and core inflation are expected to come in at 4.5 to 5.5 per cent and 2.5 to 3.5 per cent respectively.

"There are upside risks to the inflation outlook, including from fresh shocks to global commodity prices and more persistent-than-expected external inflation," said MTI and MAS.