SINGAPORE- Singapore’s key inflation rate rose at a slower pace than markets had expected last month, official data showed, opening the door for the central bank to potentially start easing monetary policy settings sooner than many anticipate.
The core inflation rate – which excludes private road transport and accommodation costs – came in at 3.1 percent year-on-year, well below the 3.6 percent forecast in a Reuters poll of economists and compared with 3.3 percent seen in December.
Headline inflation in January was up 2.9 percent from the same month last year, but also much lower than the 3.8 percent forecast in the poll.
“That’s an unexpectedly sharp drop in inflation pressures, given the hike in sales tax, carbon taxes and other administrative prices,” said Maybank economist Chua Hak Bin.
Chua said the central bank could move to ease monetary policy as soon as July if core inflation continues to fall quickly to 2 percent . He had earlier penciled in an easing in October.
Inflation has fallen from its peak of 5.5 percent in January last year but economic growth has slowed.
For the whole of 2023, GDP grew 1.1 percent , moderating from 3.8 percent in 2022.
Singapore expects higher GDP growth of 1 percent -3 percent this year but warned the economic outlook was mixed because of geopolitical risks.
Last week, Deputy Prime Minister Lawrence Wong said conflicts in Europe and the Middle East can escalate, leading to price pressures due to disruptions in global energy markets and supply chains.
In January, the central bank left monetary policy settings unchanged in its first review of the year. The Monetary Authority of Singapore has increased the frequency of its reviews from twice a year to quarterly starting in 2024.
Singapore’s economy grew slower than initial estimates in the fourth quarter of last year, on downward revisions in construction and manufacturing but the city-state was still hopeful of a pick up in activity in 2024.
The fourth-quarter expansion was also below the 2.5 percent in a Reuters poll of forecasts.
On a quarter-on-quarter, seasonally-adjusted basis, GDP expanded 1.2 percent in the October-December period, compared with 1.7 percent in advanced estimates.
The trade ministry maintained its GDP growth forecast for 2024 at 1.0 percent to 3.0 percent.
Beh Swan Gin, permanent secretary of development at the trade ministry, said manufacturing and trade-related sectors are expected to see a gradual pickup in 2024 and continued recovery in air travel and international arrivals supporting tourism and aviation-related sectors.
For the whole of 2023, GDP grew 1.1 percent, slower than the 3.8 percent in 2022.
Beh cited risks from the ongoing Israel-Hamas conflict and war in Ukraine, cumulative effects of monetary policy tightening on vulnerable banking and financial systems, and “idiosyncratic cost shocks disrupting the global disinflation process,” which have kept financial conditions tight for longer.
OCBC economist Selena Ling said there “is recognition that the recent uptick in inflation could throw the market anticipation of imminent policy pivot into disarray.” -Reuters
