Singapore's economy is showing signs of slowing inflation, according to recent data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI). With core inflation dropping to 2.1% year-on-year for October, it marks the lowest reading since December 2021. This decrease is particularly notable compared to September's figure of 2.8%. The easing trend suggests changes across various segments, driven primarily by reductions in costs associated with services, electricity and gas, and retail goods.
Even headline inflation, which encompasses all categories, retreated to 1.4% from September's 2%. This figure pleasantly surprised economists, who anticipated it would settle at around 1.8%. The decline is largely attributed to slower increases in accommodation costs and significant drops in private transport expenses. October saw accommodation inflation inch down slightly from 2.7% to 2.5%, as rent increases moderated; private transport costs witnessed a dramatic fall of 2.5%, owing mainly to lower car prices.
Food inflation remained steady at 2.6%, showing similar price trends for non-cooked food and food services over the period surveyed. Analysts have pointed out positive influences from the broader economic environment, such as declining global energy prices and the strengthening of Singapore's currency against other currencies. These factors collectively have contributed to softer price pressures across the board.
The report highlighted specific areas where inflation slowed. Services inflation dropped significantly to 2.3%, down from 3.3% the previous month, due to less aggressive price hikes for holiday services and healthcare. Electricity and gas prices also moderated, going down to 2.5% from 6.3% as the pace of increase slowed considerably. Meanwhile, retail and other goods saw inflation decrease from 0.8% to 0.1%, showcased through marked reductions in prices for clothing, footwear, and health-related products.
Looking forward, MAS and MTI project core inflation to stabilize around the 2% mark for the remainder of the year. They expect it to average between 2.5% and 3% over the whole of 2024. For the longer term, inflation could moderate even more to between 1.5% and 2.5% by 2025. Accommodation costs might see some decline next year, partially counteracting anticipated increases driven by strong demand for cars. Overall, economists anticipate total inflation will hit approximately 2.5% for 2024, alongside projections for moderations post-2025.
While these developments are encouraging, both the MAS and MTI have indicated the presence of balanced inflation risks. Stronger-than-expected labor market conditions could lead to slower reductions in unit labor cost growth. On the flip side, heightened geopolitical tensions may spur commodity prices, contributing to increasing costs for imports. Conversely, should global economic conditions deteriorate, it could trigger even lower inflation pressures domestically.
Singapore's central bank has previously utilized measures beyond conventional interest rate adjustments to manage inflation. By focusing on the local exchange rate, MAS strives to control inflation and maintain healthy economic growth. This approach has become increasingly important as Singapore does not rely solely on benchmark interest rates for its monetary policies.
The recent inflation data coincided with Singapore's upward revision of its economic growth forecast for the year. Previously, estimates predicted growth between 2.0% and 3.0%, but now officials project this figure will reach approximately 3.5%. Such optimism is bolstered by the third quarter's performance, where economic growth registered at 5.4% year-on-year, marking the strongest quarterly expansion since late 2021.
The revised forecast showcases confidence among economists and policymakers about the island nation’s resilience amid global challenges. With significant contributions from exports and other sectors driving this growth, Singapore aims to sustain its momentum moving forward. The MAS is expected to continue monitoring the situation closely as it prepares for its next policy meeting set for January.
Overall, Singapore's latest inflation figures reflect positively on its economic management, highlighting the effectiveness of its policies amid fluctuated international market conditions. The MAS and MTI's projections suggest cautious optimism as the nation navigates toward greater financial stability.
