Economists and market analysts are parsing the latest inflation data from Singapore, which presents a nuanced picture of easing price pressures in the short term against a backdrop of significant upside risks. The core consumer price index (CPI), the key measure tracked by the Monetary Authority of Singapore (MAS) that excludes private transport and accommodation costs, rose 2.2% in February. This figure came in below the median forecasts from a Bloomberg survey, which had anticipated a 2.6% increase, and also marked a slowdown from the 2.4% pace recorded in January.
Technical Reading of the February Data
According to a joint statement from the MAS and the Trade and Industry Ministry, the slower core CPI reading was driven by lower price increases for services, food, and energy. Analysts view this as a temporary reprieve rather than a sustained trend. The data, released yesterday, represents the last consumer price measure before the MAS’s next policy meeting in April, when a majority of economists expect the central bank to further tighten its monetary policy settings. “The current data doesn’t really factor in the impact of the Ukraine war, which will start to pass through to inflation in the coming months,” noted Yu Liuqing, a Singapore-based country analyst for Asia at the Economist Intelligence Unit.
Upside Risks and Policy Outlook
The joint statement from the MAS and the Trade and Industry Ministry highlighted that “while ongoing external supply constraints should ease in the second half of 2022, leading to some moderation in imported inflation, there remain upside risks to inflation from geopolitical and pandemic-related shocks.” Specifically, Russia’s war in Ukraine and a Covid-19 resurgence in China have raised concerns about further commodity price surges and global supply chain bottlenecks. These factors are creating a complex environment for policymakers. Yu Liuqing stated that Singapore’s central bank is still poised to tighten further in April, due to “core inflation likely consistently out-pacing the MAS’s expectations in 2022” and a more hawkish stance by the Federal Reserve.
What to Watch Next
The MAS, which uses the foreign exchange rate as its main policy tool, is widely expected to let the Singapore dollar appreciate against the currencies of its major trading partners. Market participants will be closely monitoring the April policy meeting for the specific parameters of any tightening move, as well as subsequent inflation data to gauge whether the February slowdown was a temporary lull or the beginning of a more sustained moderation. The interplay between easing supply constraints in the second half of 2022 and the lingering effects of geopolitical and pandemic-related shocks will be the central focus for analysts in the coming weeks.
