Singapore’s Inflation Has Yet to Peak based on Analysts

Singapore. The core and headline inflation figures in March 2022 have surpassed the analysts’ expectations. The core inflation in March 2022 rose to 2.9% on a YoY basis (the highest since March 2012) from 2.2% on the previous month, while the headline inflation surged to 5.4% YoY in March (the highest since April 2012) from 4.3% in February.

Despite the 10-year high, Singapore’s inflation has yet to peak, warns Selena Ling, chief economist and head of treasury research and strategy at OCBC bank.

“MAS and MTI flagged that external inflationary pressures have intensified amid the global commodity price surge and renewed supply chain problems due to the Ukraine war and the regional Covid situation, although China was not specifically mentioned”, said Ling.

“In addition, domestic labour cost pressures are likely to support a firm pace of wage increases over the rest of this year, with businesses passing on more of the elevated and cumulative business cost increases to consumer prices, which will keep core inflation significantly above its historical average,” Ling added.

Considering these factors, the analyst expects headline inflation to increase “by a bigger magnitude” in the coming months. This made Ling raise her headline CPI forecast to 5.0% YoY from 4.2% YoY.

Moreover, Ling added that core inflation will likely increase in the coming months, but they retained the 2022 forecasts at 3.5%.

Barnabas Gan, UOB economists expects that the core inflation will go beyond 3% in the rest of 2022.

“Given the supply chain disruption and higher oil prices, we expect food inflation to trend higher into the year to as high as 3.9% y-o-y at end 2022, while transport costs will likely grow at double-digit rate for the most part of this year,” Gan said.

“Overall, core inflation, a measure that “MAS monitors most closely, among the range of indicators”, is expected to trend higher above its 3.0% handle for the rest of this year, and average 3.5% in 2022,” Gan added.

Gan said that they expect MAS to further steepen the S$NEER gradient slightly in its upcoming Oct 2022 policy statement while leaving the width of the band and the level at which it is centred, unchanged.

However, Gan kept his headline inflation estimate unchanged at an average of 4.5% YoY by the end of 2022.

In addition, the ING senior economist Nicholas Mapa said that the red hot inflation will keep MAS in a hawkish mood.

“With price pressures expected to persist in the near term, we believe MAS will retain its hawkish bias even after the string of rate increases carried out over the past few months.

Surging core inflation will likely keep MAS on its toes but a slowing global economy complicates the decision-making process in 2022”, Mapa said.

“We believe MAS could resort to additional off-cycle adjustments should core inflation threaten to breach the top-end of its most recent forecast of 3.5%”, Mapa added.

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