Inflation rises at fastest pace in nine years at 4%

The accelerating CPI was driven by higher food and oil prices.

Consumer prices in Singapore rose at their fastest pace in nine years at 4% year-on-year (YoY) in January 2022, data from the Department of Statistics showed.

Excluding the accommodation sector, the consumer price index (CPI) increased to 4.3% YoY.

According to UOB, the accelerating CPI was driven by higher food and oil prices, with the latter pushing costs in the transport division higher in January 2022 to 12.7% YoY.

The transportation division had the fastest price increase across major expenditure divisions, followed by housing and utilities at 4.1% YoY, which UOB said was the steepest climb in the division since March 2013.

The analyst said crude oil prices will likely continue to be elevated due to “fresh geopolitical risks and tight supply conditions."

Other expenditure items which CPI increased were food (2.6%), education (2.2%), household durables and service (1.7%), health care (1.7%), recreation and culture (1.3%).

On the other hand, CPI of miscellaneous goods and services, and clothing and footwear dropped 4.4% YoY and 0.2% YoY, respectively.

Higher global commodity prices are amongst the strong drivers for higher inflation pressures for the year ahead, according to UOB.

UOB forecast that Singapore’s headline inflation for the first half of the year will likely “stay above the 3% handle, before easing towards the 2% handle by the end of 2022,” whilst core inflation could remain at 2% or higher.

“Till then, the supply chain frictions are likely to stay elevated especially for food and raw materials prices, while higher global commodity prices may inject higher pass-through effects to both consumer and business prices,” UOB said.

“Even so, the brewing geopolitical tensions, should it exacerbate, may inject further uplift to oil prices. Overall, we keep our inflation outlook for headline and core CPI at 3.0% and 2.5% respectively,” the analyst added.

ING, for its part, said the tax hikes to be implemented by early 2023 would "also translate to a sustained path of elevated inflation well into next year."

With these developments, ING believes that MAS "will retain its hawkish tilt with further tightening in the coming months."