Finance

Singapore's Surprising November Core Inflation Falls to 1.9%, Lowest in Almost 3 Years

Singapore's core inflation dropped to 1.9% in November, the lowest increase in nearly three years. Headline inflation also slowed to 1.6%, providing room for potential adjustments in monetary policy by the Monetary Authority of Singapore.

Singapore Core Inflation Falls to 1.9% in November

Singapore’s core inflation for November 2024 registered at 1.9% year-on-year, marking the lowest rate in almost three years, according to official data released on Monday. This result came in lower than the 2.1% forecasted by economists, indicating a continued deceleration in price pressures. The 1.9% increase in core inflation was the smallest since November 2021, when it was 1.6%.

The core inflation metric is critical because it excludes private road transport and accommodation costs—two of the most volatile categories. This provides a clearer view of underlying inflationary pressures in the economy, excluding temporary factors. For Singapore, the 1.9% rise marks a significant shift from earlier months when inflation rates had been higher, sparking concerns about the cost of living and the potential for aggressive monetary tightening.

Core Inflation’s Impact on Monetary Policy

The moderation in core inflation presents a unique opportunity for the Monetary Authority of Singapore (MAS) to adjust its monetary policy. The MAS had initially predicted core inflation to remain around 2% for the fourth quarter of 2024. However, the slower-than-expected rise has provided some breathing room for the central bank. The MAS has not made any significant policy changes since its tightening in October 2022, which was its fifth consecutive hike.

Economists suggest that the easing of core inflation may give the MAS the flexibility to adjust its policy stance in early 2025. This could mean a reduction in the slope of the Singapore dollar nominal effective exchange rate, a move that would effectively ease monetary conditions and support economic growth. Some analysts, however, are cautious and believe that the MAS might wait longer before making any changes, as the global economic landscape, including policies from the U.S. under President Donald Trump, continues to evolve.

Headline Inflation Also Slows to 1.6%

In addition to the drop in core inflation, headline inflation also slowed significantly in November. Headline inflation, which includes all categories of goods and services, fell to 1.6% from 1.8% in October. This decline in headline inflation is in line with the broader trend of slowing price pressures in the economy. While core inflation is often the focus of the MAS, the lower headline inflation further strengthens the argument for a potential policy shift.

For Singapore’s central bank, these inflation figures reflect the broader health of the economy and consumer spending power. As inflation slows, it signals to policymakers that the cost of living pressures on households may be alleviating, thus reducing the need for aggressive monetary tightening. This easing in inflation also comes as the economy continues to show signs of resilience, with the GDP growth forecast for 2024 being revised upward.

Strong Economic Growth Amid Slowing Inflation

One of the driving forces behind the MAS’s ability to maintain a flexible stance on monetary policy is the strong economic performance of Singapore. The trade ministry recently raised its GDP growth forecast for 2024 to 3.5%, up from a previous estimate of 2.0% to 3.0%. This upward revision reflects stronger-than-expected growth in the third quarter, where Singapore’s GDP surged by 5.4%.

This economic strength, combined with slowing inflation, gives the MAS more flexibility to consider changes in its monetary policy. While inflation is still a concern, its deceleration provides the central bank with the chance to focus on other areas of the economy, such as supporting export growth, managing domestic demand, and adjusting to global economic shifts.

Monetary Policy Outlook for 2025

Looking ahead, the outlook for Singapore’s monetary policy is uncertain, though the trend of slowing inflation points toward a potential policy easing. While core inflation has fallen below expectations, the U.S. economic policies, especially under a new president, may affect global markets and trade. Some economists believe that the MAS might hold off on making significant changes in the first quarter of 2025, opting instead for a more gradual approach to policy easing.

A recent survey of economists conducted by the MAS revealed that most economists expect the central bank to maintain its current monetary policy throughout the upcoming quarterly reviews in January, April, and July. However, a third of economists surveyed now expect a policy easing to occur in January, a shift from half in the previous survey. The reduction in the slope of the Singapore dollar nominal effective exchange rate would signal a less aggressive approach to managing inflation and supporting economic growth.

Challenges and Opportunities for the MAS

Despite the easing of core inflation, Singapore faces challenges stemming from external factors, particularly the shifting policies in the United States. With President Trump’s incoming administration signaling potential changes in trade and fiscal policy, Singapore’s economy may experience additional volatility in 2025. The MAS will need to navigate these external pressures while managing domestic inflation trends.

On the other hand, the moderation in inflation presents an opportunity for the MAS to carefully balance economic growth with inflation control. The current inflation figures suggest that Singapore’s economy may be on a stable path, with inflation under control and growth expectations rising.

Conclusion

In summary, the latest data showing a 1.9% rise in core inflation in November 2024 highlights the ongoing easing of inflationary pressures in Singapore. With headline inflation also slowing to 1.6%, the Monetary Authority of Singapore has room to potentially adjust its monetary policy in early 2025. The strong economic growth forecast for the year further supports this flexibility, though the global economic environment, particularly U.S. policies, will continue to influence the MAS’s decisions. While core inflation has slowed, it remains a key factor in guiding future policy adjustments, and the MAS will continue to monitor inflation trends closely as it looks to support Singapore’s economic stability.