Singapore’s core inflation rate fell sharply in June, reaching its lowest point since early 2021, in a sign that price pressures are cooling more quickly than expected. Figures released on Tuesday show the core Consumer Price Index (CPI), which excludes private transport and accommodation, rose by 0.6 percent year over year, down from 1.3 percent in May.
This outcome surprised analysts, who had forecast a slightly higher rate of 0.8 per cent. It also marks the most subdued core inflation figure in more than four years.
Headline inflation, which includes all components of the CPI, also slowed, coming in at 0.8 per cent compared with 2.7 per cent a year earlier. The drop was driven by falling energy prices and a moderation in food and services costs.
Policy Implications for the MAS
The inflation data lands just a week ahead of the Monetary Authority of Singapore’s (MAS) next monetary policy review, scheduled for 30 July. The MAS, Singapore’s central bank and financial regulator, takes a different approach from many of its global counterparts by managing the exchange rate, rather than adjusting interest rates directly.
Given the continued easing in inflation and a sluggish economic growth outlook, the MAS may face pressure to soften its current policy stance. Economists are divided: while some believe the central bank will maintain its current course, others suggest there may be room to loosen the currency band to support growth.
Singapore’s economy grew by only 0.6 percent year over year in the second quarter, a slowdown from 2.2 percent in the first three months of the year. The weakness is largely due to fragile global demand and trade uncertainties, both of which weigh heavily on Singapore’s open economy.
Broad-Based Moderation in Prices
Both the MAS and the Ministry of Trade and Industry (MTI) noted that the fall in inflation was broad-based. Costs across several key sectors continued to ease, including food, retail goods, and energy.
For example, food inflation edged down to 2.5 per cent in June from 2.8 per cent the month before. This trend points to a slow reduction in cost pressures in areas where household spending is also heavily correlated, where services inflation also softened, dropping to 2.9 per cent from 3.3 per cent, due to lower prices for airfares and recreational services. Meanwhile, retail and other goods saw a year-over-year decline of 1.1 percent.
Electricity and gas prices continued to fall, helping to contain overall price growth. Private transport inflation, which tends to be more volatile, rose slightly to 3.3 per cent but remained within expected levels.
What Lies Ahead
Even with the positive numbers, officials are still wary. Core inflation is expected to average between 1% and 2% in 2025, according to the MAS and MTI’s updated projections. Over the same time frame, headline inflation is predicted to hover between 2.5% and 3.5%.
Global oil prices, exchange rate volatility, and the policy directions of major central banks could yet influence Singapore’s inflation trajectory. Domestic wage pressures and rising costs in specific sectors may also resurface later in the year.
As it remained that way, the latest numbers give the MAS some breathing room. Several analysts have noted that a significant policy shift next week is unlikely, but they do not rule out changes in October if disinflation continues.
June’s inflation figures reflect a marked shift in Singapore’s economic environment. With core CPI falling to a four-year low and headline inflation moderating steadily, the MAS now faces a delicate balancing act: whether to maintain its current path or adapt its stance to better support growth amid a weaker global backdrop.
Maintaining Singapore’s economic flexibility while preventing unforeseen inflationary pressures will require finding the ideal policy balance.
