Alvin Liew, Senior Economist at UOB Group, comments on the recent inflation figures in Singapore.

Key Takeaways

“Headline and core CPI inflation further converged at the start of 2023. Headline CPI rose by 0.2% m/m NSA, 6.6% y/y in Jan, lower compared to market and our expectations, but edged higher from Dec’s 0.2% m/m, 6.5% y/y. In comparison, core inflation (which excludes accommodation and private road transport) continued to rise sequentially and at a faster pace of 0.8% m/m NSA in Jan (from +0.6% m/m in Dec), attributed partly to ‘the one-off effect of the 1%-point GST increase as well as seasonal effects associated with the Chinese New Year’. This resulted in core inflation rising further to 5.5% y/y in Jan (from 5.1% y/y in Dec), the highest y/y print since Nov 2008.”

“The sources of core inflationary pressures remained broad-based and two sources stood out: food and services inflation. The other notable components that added to core inflation were health care and education expenses while the retail & other goods also contributed. Electricity & gas inflation stayed positive but slowed further in Jan. As for the headline CPI inflation, other than upside to the core CPI, the accommodation costs increase stayed elevated, while private transport costs saw yet another further moderation, which explained why the headline CPI and core converged.”

“Inflation Outlook – Notwithstanding the one-off GST impact, the MAS maintained that core inflation ‘to stay elevated in the first half of this year before slowing more discernibly in H2 2023 as the current tightness in the domestic labour market eases and global inflation moderates’ and that the ‘MAS Core Inflation is expected to stay above 5% y-o-y in Q1 2023’. It also kept its 2023 forecasts unchanged from the Oct 2022 Monetary Policy Statement. We also maintain our current set of forecasts, for headline inflation to average 5.0% and core inflation to average 4.0% in 2023. Excluding the 2023 GST impact, we expect headline inflation to average 4.0% and core inflation to average 3.0%.”