Singapore: Inflation surprised to the upside in July – UOB

Senior Economist at UOB Group Alvin Liew reviews the latest inflation figures in Singapore.

Key Takeaways

“Singapore’s headline CPI rose by 0.2% m/m, 7.0% y/y in Jul (from 1.0% m/m, 6.7% y/y in Jun), fastest y/y print since Jun 2008 but in line with our and Bloomberg median estimate. However, core inflation (which excludes accommodation and private road transport) rose at a much faster clip, up by 4.8% y/y in Jul (from 4.4% in Jun), fastest since Nov 2008, beating expectations.”

“While the surge in core inflation was a surprise, its sources of price pressures for Jul were not unexpected. The sources of price pressures for core inflation were again broad-based including nearly all the major categories, with food, electricity & utilities and services as main drivers. As for the headline CPI inflation, other than upside to the core CPI, both the accommodation costs and private transport costs continued to play the key roles driving overall price increases. Transport component continued to lead, contributing an outsized 3.4ppts to the 7% inflation print, followed by housing & utilities (1.4ppt) and food (1.4ppt) all in similar magnitude as Jun, an indication that the sources of inflation contribution are broadening to other segments, like healthcare. Communication cost was again the only major component of CPI which saw a fall in prices, but its “contribution” was fairly insignificant.”

“In its outlook, the MAS removed its previous expectation for core inflation to peak in 3Q (2022) even as it maintained the projection for core inflation to ‘ease towards the end of 2022’. This likely means that core inflation may stay elevated for longer. Its warnings on inflation developments remained on the upside, both on the external (‘upward pressure on Singapore’s import prices are expected to persist’) and domestic fronts (tight labour market conditions and businesses to pass higher costs to consumer prices here).”

“We maintain our forecasts for headline inflation to average 6.0% and core inflation average 4.2% in 2022. Our headline CPI forecast is at the top end of the official outlook for headline CPI (5.0-6.0%) but our core CPI projection remains above the official core inflation forecast range (3.0-4.0%).”