Labour market tightness has kept Singapore’s core inflation, which strips away accommodation and private transport costs, particularly sticky. — Bloomberg
SINGAPORE: Inflation looks to have tapered after touching recent 14-year highs, due to a decline in food and energy prices and lower demand for goods such as electronic devices and home appliances.
But it might take some pain in the labour market and slower economic growth for prices to fall back to pre-Covid-19 pandemic levels.
Inflation in Singapore is still much higher than the 1.5% level seen before the pandemic, thanks to strong consumer spending on services and travel.
As borders reopened, businesses were forced to hire in a market where demand for workers exceeded supply.
Due to this strong demand for talent, workers here enjoyed wage gains that allowed many to continue spending on discretionary items such as flights and concert tickets.
This labour market tightness has kept Singapore’s core inflation, which strips away accommodation and private transport costs, particularly sticky.
On the one hand, the slowdown in all-item headline inflation is becoming more pronounced, falling to 5.1% in May from a peak of 7.5% in September 2022.
Core inflation, meanwhile, has eased much less, dropping to 4.7% in May from its peak of 5.5% in February 2023.
Selena Ling, OCBC Bank’s chief economist and head of treasury research and strategy, said: “Core inflation has been a bit more sticky, given the tight manpower and relatively resilient domestic consumption demand.”
She said government manpower policies such as the Progressive Wage Model, which helps to uplift lower-wage workers’ wages, and a quota on hiring foreign workers are among the key challenges for businesses, which continue to pass on the higher costs to consumers. — The Straits Times/ANN
