Despite GST hike, core inflation fell to 3.1% in January

SINGAPORE: The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) published a report on consumer price developments on Friday (Feb 23), showing that core inflation fell to 3.1 per cent last month, in spite of the increase in Goods & Services Tax from 8 to 9 per cent on Jan 1.

Core inflation, which takes into account all commodities, goods, and services except for food and fuel, was at 3.3 per cent in December 2023. MAS and MTI say that core inflation decreased in January due to lower services and food inflation.

Headline inflation, which measures the total inflation within an economy, also decreased to 2.9 per cent in January from 3.7 per cent in December. Significantly, inflation for both accommodation and private transport also declined.

“Accommodation inflation fell as a larger amount of Service & Conservancy Charges (S&CC) rebate was disbursed in January this year,” the report noted, adding that “private transport inflation declined due to a slower rate of increase in car prices, which in turn reflected lower COE premiums.”

As holiday expenses moderated and airfares declined, services also saw an ease in inflation. Food inflation also decreased, with the prices of cooked and non-cooked food increasing more gradually.

Inflation for retail and other goods rose slightly with price increases for clothing, footwear, medicine, and other health products. Electricity and gas saw the biggest inflation, from 1.3 per cent to 5.3 per cent, due to bigger upticks in electricity and gas tariffs.

The report from MAS and MTI also noted the decrease in crude oil prices in the last quarter of 2023, adding that these prices are likely to remain at their current levels. It also pointed out that prices for most food commodities, intermediate and final manufactured goods, have continued to decline across the globe. With supply conditions in international hospitality industries improving this year, inflation for overseas leisure travel is also expected to moderate.

“These factors, alongside the stronger S$ trade-weighted exchange rate, should continue to temper Singapore’s imported inflation in the quarters ahead,” the report added.

However, MAS and MTI expect that core inflation will pick up this month, given the Lunar New Year season. Afterward, it should “resume a gradual moderating trend over the rest of the year as import cost pressures continue to decline and tightness in the domestic labour market eases.”

The report predicts headline and core inflation to average between 2.5 and 3.5 per cent for this year. When the additional one per cent to GST is removed, this comes down to 1.5 to 2.5 per cent.

It warned, however, that “Upside risks to inflation remain, including from fresh shocks to global energy and shipping costs due to geopolitical conflicts, higher food commodity prices from adverse weather events, as well as more persistent-than-expected tightness in the domestic labour market.

“Conversely, an unexpected weakening in the global economy could induce a faster easing of cost and price pressures.” /TISG

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