Budget 2026 to target reflation risks as MAS hikes inflation forecasts: analysts

Financial analysts warn that core inflation will climb back to one point five percent despite the previous years cooling period.

Addressing the rising costs for households and operating expenses for businesses is expected to be a cornerstone of Singapore’s Budget 2026, according to UOB Global Economics and Markets Research’s latest analysis.

Whilst core inflation slowed materially to 0.7%  in 2025 from 2.8% in 2024, “there are early signs of reflation in several CPI categories, underscoring the need for continued but targeted fiscal support for low‐income households, who may not have benefited from the positive wealth effects associated with the stock market rally in 2024-2025.”

UOB expects average core inflation to rise to 1.5% in 2026, which is within the 1% to 2% government forecast, partly due to low base effects.

The Monetary Authority of Singapore earlier upgraded its official 2026 core inflation forecast range to 1.0% to 2.0% from 0.5% to 1.5% in the recent monetary policy announcement.

In a separate report, Maybank said that the government may cut back on CDC vouchers as it shifts its focus to defence, infrastructure and artificial intelligence (AI).

“CDC vouchers will likely be scaled back from the generous quantum in FY2025 (CDC $1.06b, SG60 $2.2b) and be more targeted,” Maybank said.

Another possible key element in the 2026 budget is building an AI-ready economy through skills, innovation and inclusion. The spending plan is expected to fuel existing measures whilst introducing new ones that will make way for AI-related productivity gains, UOB said.

“If successful, Singapore could achieve its goal of securing growth at the upper end of the 2% to 3% range over the medium to long term, or even 3% to 4% per annum over the next few years, as noted in an earlier oral reply to a Parliamentary Question by DPM Gan Kim Yong, thereby supporting good real wage growth for Singaporeans and enhancing the nation’s resilience in the face of global uncertainties,” the report read.

Another possible major consideration in the budget 2026 is market access for small and medium enterprises and multinational corporations amidst the growing population across major economies, coupled with a “protectionist” global trade environment.

“To strengthen resilience and foster diversified growth, the government could augment existing schemes such as the Market Readiness Assistance (MRA) Grant, BizAdapt Grant, and Enterprise Financing Scheme (EFS), which help defray costs, enhance market intelligence, and support capability development for overseas expansion,” UOB said.

“These initiatives collectively reduce barriers to entry, improve firms’ ability to navigate unfamiliar regulatory landscapes, and build operational resilience by widening their end‐consumer base,” it added.