SINGAPORE -Consumer prices have eased in January on the back of lower services and food inflation, beating analysts’ estimates in a surprise development.
But the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) cautioned that core inflation is expected to pick up in February – a warning also given by some analysts.
Official data released on Feb 23 showed that core inflation, which excludes private transport and accommodation costs to better reflect the expenses of households here, came in at 3.1 per cent year on year in January, lower than the 3.6 per cent forecast in a Reuters poll of economists.
The easing came despite the rise in goods and services tax (GST) to 9 per cent in January 2024 from 8 per cent in December 2023.
The January figure, led by a slower rise in prices of services and food, is slightly lower than the 3.3 per cent in December, the level at which core consumer prices have hovered around for months.
Overall or headline inflation fell sharply to 2.9 per cent year on year in January, from 3.7 per cent in December, beating the Reuters forecast of 3.8 per cent.
The easing of headline consumer prices is led by a decline in both accommodation and private transport inflation.
MTI and MAS said core inflation is expected to pick up in February, which would reflect the effects of the Chinese New Year. They added: “Thereafter, core inflation 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.”
Maybank economist Chua Hak Bin described core inflation in January as “unexpectedly tame” given the hike in the GST, carbon taxes and other administrative prices.
He said the drop in headline inflation was less of a surprise, and that the timing of the Chinese New Year holidays may have distorted the inflation picture.
“Looking at the combined January and February average inflation should provide a more reliable assessment on whether inflation pressures are indeed easing so quickly,” Dr Chua added.
DBS Bank economist Chua Han Teng said January’s core inflation marked the lowest point since early 2022.
Following January’s moderation, he expects a higher core inflation in February, with food being one category that has higher year-on-year price pressures due to the Chinese New Year effect.
That said, Mr Chua thinks core inflation will average lower in 2024 than 2023 as imported inflation is contained due to manageable global commodity prices, the ongoing Singapore dollar strength, as well as easing domestic cost pass-through.
Earlier in February, MAS lowered its estimate for overall inflation in 2024 to 2.5 per cent to 3.5 per cent, down from a previous projection of between 3 per cent and 4 per cent. It kept its core inflation projection unchanged at an average of 2.5 per cent to 3.5 per cent for 2024.
On a month-on-month basis, which represents how much momentum there still is in prices, core consumer prices rose by 0.6 per cent in January, due in part to the 1 percentage point GST rate increase.
However, headline inflation fell 0.7 per cent month on month, led by lower accommodation and private transport costs.
Data showed that electricity and gas inflation went up the most to 5.3 per cent in January from 1.3 per cent in December, due to larger tariff hikes.
Inflation for retail and other goods picked up to 1.4 per cent in January from the previous month’s 1.1 per cent.
Private transport inflation showed the steepest decline among categories in January, falling to 2.9 per cent from December’s 5 per cent, led by a slower rise in car prices.
Larger service and conservancy charge rebates handed out meant that accommodation inflation was down to 2.1 per cent in January, from 4.1 per cent in December.
Both food and services inflation edged down to 3.3 per cent in January.
