Singapore's Low Inflation Faces Uncertainty in 2Q24 Amid Global Commodity Prices Surge

Singapore’s inflation, which dipped to 2.7% in March, might not remain subdued in the second quarter of 2024 due to surging global commodity prices, according to experts.

In Singapore, economists are eyeing the country’s inflation trajectory with caution as the possibility of a resurgence looms in the second quarter of 2024. March witnessed a slight decline in inflation, with rates dropping to 2.7%. However, experts warn that this trend might not persist, attributing the potential uptick to the escalating prices of commodities on the global stage.

According to insights provided by RHB, evidence of mounting costs in essential sectors such as food, energy, and metals is already emerging in the current quarter. Such developments could introduce upside risks to Singapore’s imported inflation, potentially challenging the nation’s economic stability.

Contrary to initial expectations, the March inflation dip wasn’t fueled by weakened demand conditions. RHB’s analysis reveals that various sectors, including household durables and services, housing, utilities, and miscellaneous goods, either met or surpassed earlier forecasts, indicating sustained economic activity.

RHB further emphasizes Singapore’s potential for accelerated growth, backed by robust indicators such as its proprietary GDP leading indicator and optimistic global growth projections, particularly for economic powerhouses like the US and China.

The relative strength of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) likely played a role in dampening inflationary pressures. However, with the specter of continued imported disinflation affecting Singapore’s core Consumer Price Index (CPI), adjustments to monetary policy might be on the horizon.

While RHB advises maintaining the status quo in terms of monetary policies, UOB anticipates potential changes. UOB projects that a normalization of monetary policy, including a slight reduction in the policy slope by 50 basis points, could be warranted as early as the July monetary policy statement, to address the persistent impact of imported disinflation on Singapore’s economy.

As Singapore navigates the complexities of a fluctuating global economy, policymakers will undoubtedly be tasked with striking a delicate balance between supporting growth and managing inflationary pressures to ensure the nation’s economic resilience.

Article is prepared by Shahhana Begum,

Director of FChain Singapore