SINGAPORE, April 14 — Core inflation in Singapore will remain elevated in the next few months, but should progressively ease in the second half of this year, and end the year "significantly lower”.

The Monetary Authority of Singapore (MAS) gave this forecast in its half-yearly monetary statement on today.

It added that aside from the easing of core inflation — which excludes accommodation and private transport costs — by the end of the year, imported inflation would also turn "more negative”.

Elevated core inflation in the coming months is expected as businesses continue to pass down their accumulated costs to consumers, said MAS.

But this should slow "more discernibly” in the second half of this year amid falling imported inflation, lower commodity prices and the easing of domestic wage growth, the central bank added.

Advance estimates from the Ministry of Trade and Industry, also released on Friday, showed that Singapore’s economy grew 0.1 per cent year-on-year in the first quarter of 2023.

On a year-on-year basis, GDP growth came in at 0.1 per cent in the first quarter, which MAS noted was a "sharp step down” from the 2.1 per cent year-on-year growth in the fourth quarter of last year.

MAS also flagged risks to Singapore’s economic growth this year, among them the global electronics industry slump and sluggish growth in the Republic’s major trading partners.

Nonetheless, MAS said that the current appreciating path of the Singdollar nominal effective exchange rate (S$NEER) is "sufficiently tight and appropriate for securing medium-term price stability”.

Therefore, MAS said it will maintain the prevailing rate of appreciation of the S$NEER policy band.

This means there will be no change to its width and the level at which it is centred, and that this policy stance will "continue to reduce imported inflation and help curb domestic cost pressures”, said MAS.

MAS manages monetary policy by adjusting exchange rate settings, rather than through interest rates as other central banks do.

By adjusting the slope, mid-point and width of the S$NEER, the Singapore dollar is allowed to rise or fall against and an undisclosed basket of currencies of Singapore’s main trading partners.

Inflation trends

MAS said core inflation rose to 5.5 per cent year-on-year in January to February this year, from 5.1 per cent in the last quarter of 2022.

This was in line with expectations, it added.

The step-up reflected in part the increase in the Goods & Services Tax (GST) rate from January and in tobacco duties from February.

MAS added that services inflation also remained firm amid the ongoing pass-through of elevated business costs.

This was partially offset by lower electricity and gas price inflation following the decline in global oil prices.

The consumer price index, or overall inflation, also edged down to 6.5 per cent year-on-year in January to February 2023, from 6.6 per cent in 2022’s fourth quarter, as lower private transport inflation offset higher core inflation.

Inflation outlook

Barring fresh shocks to global supply, MAS said Singapore’s imported inflation, which is already negative, should fall further alongside lower commodity prices and the stronger S$NEER.

"Domestic wage growth should also ease as labour demand moderates, especially in sectors more exposed to international trade and finance,” it said.

As for 2023 as a whole, core inflation is expected to average 3.5 to 4.5 per cent.

Overall inflation is forecast to come in higher at 5.5 to 6.5 per cent.

This, said MAS, reflects the tight supply of Certificates of Entitlement and firm accommodation costs.

Excluding the effects of the GST increase, core inflation is projected to average 2.5 to 3.5 per cent, and headline inflation between 4.5 and 5.5 per cent.

Core inflation is projected to reach around 2.5 per cent year-on-year by the end of 2023.

When the impact of the GST increase is excluded, core inflation would be even lower, and closer to the historical average, said MAS.

According to MAS’s website, the average year-on-year core inflation growth between 2018 and 2022 was 1.5 per cent. From 1990 to 2022, it was 1.7 per cent.

The central bank also said there are both upside and downside risks to inflation.

"Fresh shocks to global commodity prices could impart additional inflationary pressures,” it said.

"However, a sharper-than-expected downturn in the advanced economies could induce a general easing of inflationary pressures.”

‘Dim’ GDP growth prospects

Singapore’s economic slowdown notwithstanding, MAS said global economic activity was "somewhat more resilient” than expected in the first quarter of 2023.

This, said the central bank, reflected the fall in global energy prices, strong consumer demand in the advanced economies, and the lifting of pandemic restrictions in China.

However, it added that the global electronics industry, which has significant production and trade linkages across the region, is in a sharp downturn.

MAS also said it foresees an intensification of the drag on global investment and manufacturing from tighter financial conditions in the quarters ahead.

The boost to demand in most of the regional economies from their reopening last year will also fade over 2023, it added.

As for China’s rebound, MAS said it will largely be consumption-driven and oriented towards domestic services.

"Overall, growth in Singapore’s major trading partners will be slower in 2023, below the pace recorded in the previous two years,” said MAS.

Consequently, the central bank said prospects for Singapore’s GDP growth this year have "therefore dimmed”.

The trade-related cluster, it said, is expected to contract further, while activity in the modern services sectors remains subdued.

Similarly, MAS said the pace of expansion in the domestic-oriented sectors should also moderate as higher consumer prices and interest rates restrain spending.

All in, MAS said Singapore’s GDP growth is projected to step down to between 0.5 and 2.5 per cent in 2023, from 3.6 per cent last year.

Said MAS: "This below-trend pace of growth will cause the positive output gap at end-2022 to turn slightly negative this year.”

As for the global growth outlook, MAS said it remains uncertain.

This is because the impact of tighter monetary policy in the advanced economies could be amplified by fragilities in the financial system, it said, and it will further restrain credit growth and dampen confidence.

The central bank said the risks to growth in the global economy and in Singapore are tilted to the downside. — TODAY