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Singapore's core-inflation has risen to its highest in a decade for the month of March, official data released on Apr. 25 indicated.

According to the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI), core inflation rose to 2.9 per cent on a year-on-year basis in March 2022, from 2.2 per cent in February 2022.

This was driven by higher inflation for food and services.

Reuters reported that this is the highest since March 2012, when the same figure was also reported.

A Reuters poll of economists had also predicted an increase of 2.4 per cent.

Apart from core inflation, inflation for private transport and accommodation also came in higher.

What is core inflation?

According to MAS, core inflation is meant to capture the generalised and persistent price changes that are driven by underlying demand conditions.

It provides useful information for monetary policy with the objective of ensuring price stability in the medium term.

MAS added that the core inflation measure does not include the components of “accommodation” and “private transport" as these items tend to be significantly influenced by supply‐side administrative policies and are volatile.

Headline inflation increased from 4.3 to 5.4 per cent

In addition, the consumer price index (CPI), or headline inflation, increased to 5.4 per cent for March 2022, up from 4.3 per cent in February 2022, on a year-on-year basis.

The CPI covers only consumption expenditure incurred by resident households.

It excludes non‐consumption expenditures such as purchases of houses, shares and other financial assets and income taxes, among others.

MAS and MTI added that CPI inflation increased mainly on account of higher private transport, food and services inflation.

For private transport, inflation picked up on the back of a larger increase in car and petrol prices.

As for food, inflation rose as the prices of both non‐cooked food and food services increased at a faster pace.

Meanwhile, services inflation was higher primarily due to a larger increase in the cost of other transport services, such as air travel and holiday expenses.

MAS and MTI noted that transport services rose more steeply in March, reflecting in part the inclusion of the costs of travel‐related mandatory Covid‐19 tests.

At the same time, the costs of recreational and cultural services and point‐to‐point transport services also picked up more strongly.

What is driving the inflation?

MAS and MTI highlighted that external inflationary pressures have intensified amid "sharp" increases in global commodity prices and renewed supply chain disruptions driven by both the Russia‐Ukraine conflict and the regional pandemic situation.

They added:

"In the near term, heightened geopolitical risks and tight supply conditions will keep crude oil prices elevated, while supply‐demand mismatches in other commodity markets, as well as bottlenecks in global transportation and regional supply chains, are also likely to persist."

Within the domestic sphere, the labour market is expected to "remain tight" and support a "firm" pace of wage increases over the year.

"Amid improving demand, greater pass‐through of accumulating business costs to consumer prices is likely to occur, keeping core inflation significantly above its historical average through the year," MAS and MTI said.

MAS and MTI added that core inflation is forecast to pick up further in the coming months, before moderating towards the end of the year as some of the external inflationary pressures recede.

However, there remain upside risks to inflation from the recent geopolitical and pandemic‐related shocks.

Meanwhile, with private transport and accommodation inflation is expected to stay "firm" in the near term, while CPI inflation will pick up by more than core inflation this year.

MAS and MTI said that for 2022 as a whole, CPI inflation is forecast to come in between 4.5 to 5.5 per cent, while core inflation is projected to average 2.5 to 3.5 per cent.

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