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Singapore’s core inflation (which excludes private transport and accommodation, but includes food and energy) has cooled from its peak, similar to global trends. Yet, this cycle has been stickier, with early-2024’s reading hovering at ~3% year-on-year (YoY), staying above the 1.7% YoY long-term historical average.

We expect core inflation to soften gradually and be less sticky as 2024 progresses, with our average 2024 forecast at 3.1%, down from 2023’s 4.2%. Factors include the fading of the transitory upside impact of the goods and services tax (GST) hike, and moderating domestic labour cost pass-through, alongside contained import price pressures. We explore the cycle dynamics of Singapore’s core inflation and these factors in this report.

Core inflation cycles

Singapore has achieved price stability over the long-term. We identify three cycles of core inflation sustaining above the 75^th percentile YoY rate since 2000:

1) the current cycle, from 2022 to present;
2) late-2011 to early-2013;
3) around mid-2007 to early-2009.

We track disinflation from the core inflation peak of the three cycles. The current cycle’s deceleration is the slowest. Core inflation at 3.1% YoY in January 2024 was down by 2.4 percentage points (pp) from February 2023’s 5.5% YoY peak, but after 11 months, is still some distance from the 1.7% YoY long-term average.

The downtrend was during the mid-2007 to early-2009 cycle. This coincided with the Global Financial Crisis (GFC), with Singapore’s outward oriented economy experiencing a severe economic downturn. Core inflation turned negative in May 2009, substantially lower than June 2008’s 6.5% YoY high.

Core inflation moderation from January 2012’s peak was relatively steady, partly due to a lower starting point of 3.5% YoY. Core inflation retreated to below 2.0% YoY within a year.

The transitory impact from GST hikes

The respective one percentage point GST hikes to 8% from January 2023, and to 9% from January 2024 is one of the factors propping up core inflation in this cycle, in our view. Nevertheless, the GST inflation impact is likely transitory and would fade. The core inflation average MoM sa increment tends to be softer after the spike in the month of the GST hike, and was also seen in 2023. We think a similar dynamic appears likely in 2024.

Labour cost pass-through

Singapore has not experienced a wage-price spiral, but the pass-through of elevated domestic labour costs is another factor supporting core inflation in the ongoing cycle vs the other cycles.

In the current cycle, Singapore’s nominal wage growth (measured by average monthly earnings of resident workers) has been noticeably higher than in previous cycles in the quarter that core inflation peaked (1Q23) and until two quarters after (2Q23 to 3Q23). This was due to tight labour market conditions. The job vacancy to unemployed person ratio exceeded two in 1Q23, before easing in subsequent quarters to 1.7 in 4Q23. Normalising labour supply conditions amid a recovery in the non-resident workforce, and softer labour demand due to weaker cyclical economic growth reduced labour market tightness somewhat.

In the cyclical horizon, we expect the domestic labour cost pass-through to consumer prices to cool gradually. While more businesses have plans to raise wages in 2024, the pace of increments would be comparatively modest, as excessive labour market tightness eases. The Ministry of Manpower (MOM) expects non-resident labour supply to rise in 2024, while we reckon the degree of mismatch in the labour market could decline further. Singapore’s Beveridge curve has reverted closer to the pre-pandemic trend as of 4Q23 vs 1Q23. Ongoing efforts on job transformation and reskilling/upskilling of the resident workforce could also help to some extent.

Global commodity price dynamics remains key

Singapore lacks natural resources and is heavily dependent on food and energy imports. Global commodity price moderation has, therefore, been a key factor that cooled core inflation in all three cycles, albeit to varying degrees due to different dynamics. This, alongside the MAS’s proactive monetary policy approach, has tamed imported inflation.

The current cycle’s global food and energy price movements appear closer to the fluctuations during late-2011 to early-2013, but supply was a major determinant this time. Food and crude oil prices have stepped down from their 2022 highs. The declines were mainly due to the easing of global supply chain frictions from the post-pandemic reopening and the onset of the Russia-Ukraine War. Largely resolved global supply chain issues resulted in lower goods inflation globally and in Singapore. The MAS’s early and aggressive monetary policy tightening between October 2021 and October 2022 also curbed imported inflation.

We expect Singapore’s imported price pressures to continue to be tempered by contained global commodity prices. The adjusted UN FAO food price index dropped by ~13% YoY in February 2024, with global supply conditions still favourable, and is likely to feed through to Singapore’s imported food prices with some lag. Brent price is little changed vs a year ago, and energy-related inflationary impulses should be kept in check, barring unexpected significant upside price shocks, for e.g. from geopolitical conflicts/events.

Containing inflation remains a policy priority

Singapore’s inflation, while subsiding, remains high, and therefore, continues to be a policy priority from both monetary and fiscal angles.


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