SINGAPORE: Consumer prices in Singapore are set to rise further as businesses pass on accumulating costs to customers amid sharply higher commodity prices, renewed supply chain disruptions and tight domestic labour market conditions, the central bank warned on Thursday (Apr 28).
Core inflation is projected to "pick up sharply" in the coming months and peak in the third quarter of 2022, said the Monetary Authority of Singapore (MAS) in its half-yearly macroeconomic review.
Since MAS’ review in October, global developments, in particular the Russia-Ukraine conflict, have worsened the external inflation outlook, the authority said.
Thus consumer price inflation in Singapore is expected to increase and “remain elevated for some time”.
One major factor is the recent surge in energy prices, which will filter through to electricity and gas tariffs in the third quarter. Higher energy prices will in turn feed into greater inflation for transport and food services over time.
However, underlying price pressures could ease towards the end of the year, assuming that global commodity prices stabilise and global supply constraints loosen somewhat, the central bank said.
For 2022, core inflation has been projected to come in at 2.5 per cent to 3.5 per cent, up from the previous forecast of 2 per cent to 3 per cent.
Headline or overall inflation, which includes private transport and accommodation, has been forecast to come in even higher, at between 4.5 per cent and 5.5 per cent.
This is due to elevated Certificate of Entitlement premiums and petrol prices, as well as a backlog of construction delays in residential projects pushing up transport and home prices.
Food prices are expected to increase further considering the shocks to the global supply chain. MAS said that the Russia-Ukraine conflict will have “significant repercussions” on global prices of food, which had already risen to close to record levels before the war.
There have been steep price increases in grains and edible oils as Ukraine and Russia are both major global exporters of these commodities. Some countries have also imposed export bans to secure their own supply, further restricting global supply.
Adding to this, fertiliser costs have been pushed up by reduced supplies from Russia and Ukraine, which could lead to lower agricultural yield worldwide.
Singapore's companies have so far been able to temporarily absorb some cost changes within their profit margins, but the higher level of global food prices will "eventually be fully reflected" in domestic food prices, the authority said.
“Elevated global food prices are therefore expected to continue to exert pressure on Singapore’s food inflation beyond 2022.”
MAS noted that food services inflation rose significantly to 2.6 per cent year-on-year in the first quarter of 2022, highlighting that higher hawker and restaurant food inflation accounted for about 30 per cent of the rise in core inflation.
Furthermore, business cost pressures are anticipated to build up, amid rising material, utility and labour costs.
For the food & beverage sector, the pressure on prices is from three sides - raw ingredients, utility charges and labour costs.
All consumer-facing sectors, not just F&B, are also likely to experience stronger wage pressures with a tight domestic labour market and most COVID-related wage subsidies ceasing, said MAS.
However, the impact could be cushioned by the further relaxation of border policies from April and the resumption of inflows of foreign workers, as well as government subsidies from the Progressive Wage Credit Scheme.
ECONOMIC RECOVERY TO BROADEN
As global growth is expected to moderate, Singapore’s trade-related sectors, which led the recovery in 2021, could see its contribution to GDP growth ease this year, said MAS.
However, the drivers of growth should broaden to the domestic-oriented and travel-related sectors, with the substantial easing of safe management measures and border restrictions.
As earlier projected, the Singapore economy is expected to expand by 3 per cent to 5 per cent this year, in the absence of further disruptions from the Russian-Ukraine conflict or deterioration in the pandemic situation.
The invasion of Ukraine and sanctions on Russia have “cast a pall” over the economic outlook, said MAS. While Singapore’s direct trade exposure to Russia is minimal, there could be knock-on effects due to disruption to Russia’s exports.
The ripple effects from the conflict on Singapore’s economic growth could add “significant uncertainty” as the situation plays out in the coming quarters, said MAS.
LABOUR MARKET AND WAGES
Despite this, hiring is expected to remain firm in 2022 and labour demand should pick up in the consumer-facing, travel-related as well as the health and social services sectors.
While the economy is recovering and border restrictions have eased, MAS said that non-resident workers are likely to form a smaller proportion of total employment here compared to the pre-COVID share over the next few years.
Fall in demand for foreign workers could be a result of increases in labour productivity arising from investments in automation and technology, it said.
The tight labour market is expected to keep nominal wage growth above recent historical averages.
This comes as several policies that aim to raise the wages of low-wage local workers are due to be implemented.
These include the expansion of coverage for the Local Qualifying Salary, and the introduction of the Progressive Wage Credit Scheme and Progressive Wage Model in the retail sector.