Core inflation in Singapore quickens but dips below expectations

Headline and core inflation remained elevated in January. Headline inflation was steady at 4% driven in large part by the sustained pickup in food prices (2.6%) on top of housing and utilities (4.1%). Meanwhile, transport, household durables and services, and recreation and culture experienced a deceleration in inflation for the month. Core inflation on the other hand quickened to 2.4% notching the 7th month of acceleration. The Monetary Authority of Singapore (MAS) previously indicated that core inflation could surge to 3% by mid-year.

Despite slipping below consensus estimates, the latest inflation turnout suggests that inflation may continue to climb in the near term. Upside pressure on inflation will likely persist given the ongoing supply-side bottlenecks coupled with elevated global energy prices due to heightened geopolitical tensions. Meanwhile, domestic demand conditions appear to be firming at a time when labour market conditions are set to tighten due to revised rules on foreign labour. Projected increases to taxes by early next year should also translate to a sustained path of elevated inflation well into next year. These developments continue to support our expectation that MAS will retain its hawkish tilt with further tightening in the coming months a possibility.