Normalisation of holiday demand could have contributed to softer inflation despite impact of GST hike: UOB economists

SINGAPORE: Experts responding to the recent deceleration in consumer prices, which eased to 2.9% year-on-year in January despite the implementation of the Goods and Services Tax (GST) hike during the same month, have suggested that the dip could be due to a number of factors.

One factor could be a “dampened passthrough of the GST hike to consumer prices,” according to UOB senior economist Alvin LiLiewwho told Singapore Business Review (SBR) that some retailers might have chosen to absorb or delay the GST increase to maintain positive customer relations.

This strategic move aimed at preserving customer goodwill could be a contributing factor to the unexpected moderation in price inflation.

The normalization of holiday demand could also have played a role in the underwhelming headline and core inflation print.

Jester Koh, an associate economist at UOB, told SBR, “Holiday expenses eased owing to the dissipation of the strong holiday demand in December.”

Analysts at UOB, taking into consideration the latest inflation figures, predict a potential shift in the Monetary Authority of Singapore’s (MAS) monetary policy.

They anticipate that the MAS may initiate monetary policy normalization by implementing a slight slope reduction of 50 basis points, bringing the estimated annual rate to 1.0%.

This anticipated move is expected to be announced in the April 2024 monetary policy statement.

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