By Xinghui Kok
SINGAPORE- The smallest rise in Singapore’s key consumer price gauge in more than two years in July has created space for the central bank to consider easing policy, economists said on Friday.
The core inflation index, which excludes private road transport and accommodation costs, rose 2.5 percent in July from a year earlier, official data showed, coming in below both the 2.9 percent forecast in a Reuters poll, and the 2.9 percent rise in June.
It was the smallest annual increase in the core price index since February 2022, when it rose 2.2 percent .
OCBC economist Selena Ling said while core inflation was moderating faster than the market had expected, it was unlikely to go back to pre-Covid levels of 1-2 percent .
“It bodes well for it to head back to 2 percent in 2025,” she said. “I think it will likely bump around the 2 percent handle until there is a recession, easing labor market or a glut in energy supply.”
Inflation in the Asian financial hub has cooled from a peak of 5.5 percent in early 2023, but only dropped below 3 percent in June.
Ling said it was possible that the central bank would loosen monetary policy in its October meeting, while Maybank economist Chua Hak Bin saw an easing as more likely at the January review.
The Monetary Authority of Singapore (MAS) has not changed policy since a tightening in October 2022.
Headline inflation in February was up 2.4 percent from the same month last year, lower than the 2.5 percent forecast in the poll. It was the lowest headline inflation rate since August 2021.
The expects core inflation to ease more significantly in the final quarter of this year. It has forecast core inflation at 2.5 percent to 3.5 percent this year.
Core inflation was running at 3.1 percent in the first seven months of the year from the same period in 2023, Singapore Department of Statistics said.
Last week, the trade ministry adjusted its GDP growth forecast range for 2024 to 2.0 percent to 3.0 percent , from 1.0 percent to 3.0 percent previously after the economy posted stronger-than-expected second quarter growth.
Singapore’s economy grew 2.9 percent in the April-June quarter from a year earlier, matching the official advance estimate and above market expectations, government data showed on Tuesday.
The trade ministry said it had adjusted its GDP growth forecast range for 2024 to 2.0 percent to 3.0 percent, from 1.0 percent to 3.0 percent previously.
Economists in a Reuters poll forecast growth of 2.7 percent for the second quarter.
On a quarter-on-quarter, seasonally adjusted basis, GDP expanded 0.4 percent in the April to June period, also matching the advance estimate.
“On balance, Singapore’s external demand outlook is expected to be resilient for the rest of the year,” the trade ministry said, though it noted downside risks remained from any intensification of geopolitical and trade conflicts or if global financial conditions stayed tighter for longer than expected. “Against this backdrop, Singapore’s manufacturing sector is expected to see a gradual recovery in the second half of the year,” the ministry said.
Last month, the Monetary Authority of Singapore (MAS), the central bank, said it expected the economy to strengthen over the rest of 2024, with growth coming in closer to its potential rate of 2—3 percent.
For the whole of 2023, GDP grew 1.1 percent, slower than 3.8 percent in 2022.
The MAS left monetary policy settings unchanged last month in its third review of the year as inflation pressures continued to moderate and growth prospects improved.
