Singapore’s Core Inflation Set to Plummet: A 3-Year Low Awaits!

SINGAPORE – Exciting news for Singaporean households: core inflation is projected to drop to around 2% by the end of 2024, marking the lowest point since November 2021, according to the Monetary Authority of Singapore (MAS). This forecast comes after a period of surprisingly high inflation figures, indicating a significant turnaround in the economic landscape.

Core inflation, which filters out private accommodation and transport costs to more accurately reflect household expenses, has been on a rollercoaster ride. After plummeting to 2.5% in July—the lowest in over two years—there was a slight uptick to 2.7% in August and 2.8% in September, largely driven by increased retail and service inflation. However, MAS remains optimistic, attributing the recent peaks to temporary hikes rather than a sustained trend.

The MAS highlighted that core inflation has dramatically decreased from its peak of 5.5% in January 2023. Its latest biannual Macroeconomic Review report, released on October 28, assures that the overall decline will hold steady, despite some fluctuations in monthly data. For the entirety of 2024, core inflation is expected to average between 2.5% to 3%, a significant decline from 4.2% in 2023. Similarly, all-items inflation is anticipated to average around 2.5% in 2024, down from 4.8% the previous year.

Several key factors are contributing to this positive outlook. The surge in leisure travel demand following the pandemic has subsided, preventing a rise in travel-related services prices. Additionally, the implementation of enhanced public healthcare subsidies starting in October is expected to dampen essential services inflation for the rest of the year.

Crude oil prices, which have decreased compared to last year, will also play a role in lowering electricity and gas inflation by the fourth quarter of 2024. This relief will be felt by residents, as energy costs typically impact household budgets substantially.

Looking ahead to 2025, inflation is likely to remain tame as lower import prices and a slower growth of domestic wages are predicted to keep both core and overall inflation within a range of 1.5% to 2.5% on average. The MAS attributes part of this forecast to the waning effects of the goods and services tax (GST) hike on inflation. They emphasize that if inflation trends align with historical averages, core inflation might stabilize towards the mid-point of that range over the course of the year.

Notably, the appreciation of the Singapore dollar against a basket of its major trading partners’ currencies has helped reduce the costs of essential imports like fuel and food. This is part of the MAS’s unique approach to managing inflation, which focuses on the nominal effective exchange rate (S$Neer) rather than traditional interest rate adjustments. This method, while effective in curbing inflation, must be balanced against the risk of a too-strong Singapore dollar that could hamper export competitiveness and deter foreign tourism.

Finally, the MAS anticipates that inflation in Singapore's key trading partners will return to levels seen before the COVID-19 pandemic by 2025, further easing pressure on imported costs. With a relatively stable external cost environment projected, Singapore looks poised for a period of moderation in inflation, much to the relief of its residents.

Is your wallet ready for the potential savings? Stay tuned for more updates!