Core inflation in Singapore accelerated for a seventh month to the fastest in almost a decade amid expectations that its central bank will act again in April to tighten policy.
The central bank's core consumer price index -- which excludes private transport and accommodation costs -- advanced 2.4% in January, the most since September 2012. That compares with a median forecast of 2.5% in a Bloomberg survey.
Food and energy drove the increases, along with a slower pace of price declines for retail goods, according to a joint statement Wednesday from the Monetary Authority of Singapore and the Ministry of Trade and Industry.
“While ongoing external supply constraints should ease in the second half of 2022, leading to some moderation in imported inflation, there remain upside risks to inflation from pandemic-related and geopolitical shocks that could further disrupt global supply chains,” they said in the statement, adding that the domestic labour market is expected to tighten.
While the inflation readings for last month are still within the MAS’s forecast range, recent sustained price pressures have fed expectations that the central bank will tighten monetary policy for a third time in six months at its April policy meeting, after a surprise move in January.
- GST rise -
Consumer price increases have also encouraged officials in the Southeast Asian nation to stagger an increase in its Goods and Services Tax over two years. Finance Minister Lawrence Wong, speaking earlier this week on CNBC, said the move is aimed at addressing concerns about levies going up “at a time of rising prices.”
Headline inflation in January rose by 4% from a year ago, unchanged from the previous month and below economists’ estimates for a 4.2% increase. The gauge is now at its highest level since February 2013.
Analysts from Goldman Sachs Group Inc, Australia & New Zealand Banking Group Ltd and Citigroup Inc have said that the staggered increase in the GST will keep inflation elevated as it kicks in over 2023 and 2024.
Other factors like tightened foreign labour criteria and sharp carbon tax increases announced in the budget last week could keep core readings above historical averages at 2% to 3.5% through 2024, Wei Zheng Kit, a Citigroup economist, wrote in a note this week.
“This implies a steeper ‘new normal’ policy band slope,” he said, referring to the range in which the MAS allows the Singapore dollar to fluctuate against a basket of foreign currencies.
The MAS and MTI on Wednesday reiterated an outlook that core CPI could reach 3% in the middle of the year before easing. They also repeated estimates for the core measure to average 2% to 3% this year, while headline inflation is seen within 2.5% and 3.5%.