Core Inflation in Singapore Has Come Down To 5.1%
From 2.2% in February to 5.3% in September- Singapore saw a consistent increase in core inflation this year. Thankfully, the report for the month of October reveals that the core inflation has come down 5.1%- a slight decrease.
Energy prices and the prices of retail goods and other services increased at a slower pace during the relevant period, which eased the rate of inflation.
As far as overall inflation is concerned, it reduced to 6.7% in October from the high of 7.5% in September. The reason for this reduction- apart from the decrease in core inflation – is that Singapore saw transport inflation ease during October.
Core Inflation vs. Overall Inflation
When it comes to measuring the overall inflation, the prices of food and petroleum are taken into consideration while looking at the indicator of the Consumer Price Index. However, the prices of both petroleum and food fluctuate widely. This is why keeping the prices of these two commodities in the CPI index skews the inflation data. To know the real inflation level, we need to exclude these two commodities. This so-called real inflation is what we call core inflation. It is measured using the same CPI – but this time, we exclude the prices of food and petroleum.
Despite Reduction, Singapore’s Core Inflation Will Remain High in the Near Term
As per the Monetary Authority of Singapore and the Ministry of Trade and Industry, the core inflation will remain high for a few more quarters. From H2 2023 onwards, the figure will start reducing at a higher rate. The average headline inflation for the current year will hover around 6%, while the core inflation will be around 4%.
As far as sector-wise inflation is concerned, Singapore saw mixed results. On the one hand, there was a reduction in the private transport inflation which stood at 17.3% YoY in October; on the other hand, food inflation rose, which stood at 7.1% in October. This mixed result was due to the fact that the increase in car and petrol prices slowed down in October, while the food prices increased at a greater rate.
October brought good news to industries dealing in retail and other goods. Inflation in this sector reduced to 2.6% in October. This is because the prices of clothing, footwear and other personal care products increased at a slower pace. The services sector, too, saw a reduction in inflation in October.
The authorities said that the prices of commodities have come down from their peak levels, but the ongoing supply chain constraints are going to prevent further reduction. The slight decrease in core inflation comes amid the softening demand conditions in major economies of the world and a slight improvement in supply-chain stability.
Effect of Impending GST Hike
Singapore will increase the Goods and Services Tax from 7% to 8% from 1st January 2023. Naturally, this will impact the inflation rate from January onwards. Officials estimate that the headline inflation will hover between 5.5 to 6.5% after the GST hike, while the core inflation will likely hover around 3.5% to 4.5%.
However, officials claim that the impact of the GST hike will be temporary and the overall inflation will be somewhere between 4.5 to 5.5% and the core inflation will continue hovering around 2.5 to 3.5%.