Singapore’s Core Inflation Likely to Peak in Third Quarter, MAS Head Says

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By Ronnie Harui

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Singapore’s core inflation is expected to peak in the third quarter before leveling off and slightly slowing toward the year’s end, the Singapore central bank head said Tuesday.

The Monetary Authority of Singapore has projected core inflation to rise to 4.0%-4.5% in the current quarter before slowing toward around 3.5%-4.0% by the end of 2022, which is still much higher than what the country is accustomed to.

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Inflation is surging worldwide as a robust post-Covid-19 demand recovery has encountered supply-side frictions and Russia-Ukraine war-related disruptions, said Ravi Menon, the MAS’s managing director, in prepared remarks at a press conference where the central bank released its annual report for the financial year ended March 31.

“The inflation story in Singapore is not too different from the global story,” Mr. Menon said.

The primary source of inflationary pressures now in most advanced economies is labor-market tightness, he added.

For the whole of 2022, the city-state’s core inflation is projected at 3.0%-4.0%, while overall inflation is forecast at 5.0%-6.0%, as car and accommodation cost increases are likely to stay firm, Mr. Menon said.

However, this inflation outlook isnt without upside risks, Mr. Menon said. If there are fresh shocks to global energy and food supplies stemming from the Ukraine conflict or a substantial overheating of the domestic labor market, Singapore’s inflation may end up being higher and more persistent, he added.

The MAS has been proactive in its response to rising inflationary pressures by tightening policy four times in the past nine months, Mr. Menon said. The MAS’s monetary policy is centered on managing the exchange rate of the Singapore dollar, he said, adding that a stronger exchange rate helps to directly reduce imported inflation and restrain export demand, providing relief to labor-market pressures.

“The effects of MAS’ four monetary policy tightening moves are still working their way through the economy and will continue to damp inflation over the next 12 months,” Mr. Menon said, adding that the exchange rate’s appreciation is estimated to damp core inflation by 0.9 percentage point in the second half. Over 2022-2023, the four tightening moves are projected to restrain core inflation by an average of 1.2 percentage points each year, Mr. Menon added.

However, monetary policy should be used in a “balanced and calibrated” manner and not try to fully offset inflation, Mr. Menon said. “Strengthening the exchange rate to try to fully offset the impact of global prices runs the risk of sharply curtailing growth and creating unemployment,” he said.

For its financial year ended March 31, the MAS recorded an overall loss of S$7.4 billion (US$5.3 billion), reflecting lower investment gains, a large negative foreign-exchange translation effect and higher interest expenses, Mr. Menon said.

Write to Ronnie Harui at [email protected]


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