August inflation falls within analyst estimates

Consumer prices rose for the eighth straight month in August.

According to various banks, the 2.4% consumer price index (CPI) for August 2021 is in line with their current market estimates.

“This is the eighth straight month where Singapore’s saw higher consumer prices from a year ago, although the latest print was slightly slower than July’s inflation pace of 2.5% year-on-year (-0.2% m/m sa). Accounting for the latest data, Singapore’s consumer prices rose 1.8% in the first eight months of 2021,” UOB said.

UOB also stated that despite the current performance, this period should be seen as a transitory period as the year ends. Various factors, such as the unemployment rate and spending power influenced the period.

“Dissipating base effects and a higher unemployment rate in July suggest that Singapore’s inflation pressures are likely to be transitory. First, the low base effects in 2020, which had largely supported consumer prices year-to-date, is expected to dissipate into the year ahead. Second, the higher unemployment at 2.8% in July 2021 (from 2.7% in June) suggests that disposable income and spending power may be capped as more time may be needed to fully absorb the slack in Singapore’s labour market. Third and last, the lingering COVID-19 risks should continue to limit commercial rents, thus capping overall business cost pressures.”

The same sentiments were also echoed by OCBC, as the bank expects further improvement in 2022. Subdued wage inflation and lowered effects from commercial rents are the reason for this. 

“The inflation outlook is likely to evolve into a less benign end-2021 and into early 2022. Whilst the official rhetoric continues to cite that the elevated external pricing pressures are beginning to ease as low base effects fade, and domestic wage inflation remains subdued and commercial rents are also generally soft currently. However, local car demand remains firm (note Category E COEs crossed $70k in the latest tender results), and accommodation demand could pick up further on the back of rental demand. Moreover, the domestic labour market is likely to improve further into 2022, with the planned expansion of the Progressive Wage Model to more sectors from September 2022 and the requirement of firms to pay local workers the Local Qualifying Salary if they wish to hire foreign workers, likely to drive wage inflation higher next year.”