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Singapore core inflation turns positive for the first time after a year

Singapore core inflation turns positive for the first time after a year

A view of the Singapore skyline. (Photo: Genevieve Loh)

SINGAPORE: Singapore's core inflation turned positive for the first time in a year, driven by an increase in services costs and higher food inflation, data showed on Tuesday (Mar 23).

Core inflation rose to 0.2 per cent year-on-year in February, from -0.2 per cent in January, data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) showed on Tuesday (Mar 23).

Core inflation - a key policy consideration for the central bank - excludes the price of private transport and accommodation.

The headline consumer price index (CPI), or overall inflation, rose to 0.7 per cent in February, from 0.2 per cent in January. This was driven by higher private transport inflation, in addition to the rise in core inflation.

UOB economist Barnabas Gan said that the return of positive year-on-year core inflation in February highlights two issues.

"It suggests the reintroduction of higher prices in Singapore’s basket of goods and services that may affect the day-to-day outlay of most Singaporean households," said Mr Gan.

"Higher core inflation may also affect policy-making, in view of the upcoming monetary policy meeting by MAS in April," he added.


Services costs rose by 0.5 per cent in February, reversing the -0.3 per cent decline in the previous month. This was on the back of higher inflation for tuition and other fees, as well as a smaller decline in outpatient services costs. 

As part of the COVID-19 response measures, the Singapore Government introduced subsidies for the treatment of respiratory illnesses at public health preparedness clinics and polyclinics from Feb 18, 2020, said the authorities. 

"These subsidies exerted a smaller downward drag on the year‐on‐year inflation of outpatient services in February 2021 compared to previous months and should completely cease to weigh on year‐on‐year inflation from March 2021," they said.

READ: Household incomes fall in 2020 due to COVID-19 impact, but rose in past 5 years

Holiday expenses saw a "milder pace of decline" while airfares rose in February, said MAS and MTI. However, airfares and most of the components in the holiday expenses CPI were imputed using the overall change in overall inflation as they remain unavailable for consumption due to international travel restrictions. 

Food inflation edged up to 1.6 per cent in February from 1.5 per cent in January as the prices of prepared meals rose at a pace similar to that in the previous month. 

The cost of electricity and gas declined at a slightly faster rate at -9.8 per cent on the back of a smaller increase in gas prices. 

READ: Singapore economy shrinks a record 5.8% in a pandemic-hit 2020

The cost of retail and other goods saw a faster rate of decline of -1.9 per cent in February from -1.3 per cent in January. This is mainly due to larger reductions in the prices of clothing, footwear and personal effects. Prices of medicines and health products fell in February as well. 

Private transport costs registered a larger increase of 4.2 per cent in February from 1.9 per cent in January, due to a stronger pickup in car prices and a smaller decline in petrol prices. 

Accommodation inflation remained unchanged as housing rents continued to rise at a steady pace.

"As we highlighted previously, domestic inflationary pressures have started to emerge in the form of wages (especially overtime payments, but also probably due to the restrictions on foreign manpower) and transportation costs (particularly freight surcharges due to the port congestion and shortage of empty containers) in February," said Ms Selena Ling, OCBC Bank's head of treasury research and strategy.

"This had contributed to selling prices increasing for the first time in more than a year since the COVID-19 pandemic began as business confidence improved and firms sought to protect their profit margin erosion.

"If sustained, this coupled with the buoyant crude oil prices, could also pose upside risks if a faster growth recovery trajectory materialises," she added.

READ: Singapore should strive to remain fiscally prudent amid highly uncertain global outlook: DPM Heng


In its report, MAS and MTI said that external inflation is likely to pick up in the quarters ahead amid the expected recovery in global oil prices.

On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued, they added.

Core inflation is forecast to be mildly positive this year, averaging 0 per cent to 1 per cent, as higher oil prices lead to a pick up in electricity and gas tariffs and the disinflationary effects of government subsidies introduced last year fade, they said.

The forecast range for overall inflation is being reviewed given the recent sharper-than-expected increases in the prices of the non-core items, said MAS and MTI. A revised forecast range will be released in MAS' upcoming Monetary Policy Statement in April.

"The balance of risk for inflation in 2021 is tilted to the upside on the back of the reflation environment – defined as the return to global economic growth after the COVID-19-induced recession in 2020," said Mr Gan.

"The dissipation of disinflationary effects by government subsidies seen in 2020 may also serve to lift CPI in 2021," he added.

Source: CNA/lk


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