Inflation to ease further in 2H23, but sticky prices likely in 3Q23

In June, headline inflation dropped to 4.5%.

Experts believe that Singapore’s inflation momentum will continue to moderate in the second half of the year but warned of sticky prices in 3Q23.

Barnabas Gan, RHB’s senior economist, underscored that Singapore’s inflation remains dependent on global prices and import prices have contracted on a year-on-year basis for five months straight.

Domestic factors such as the increase in the Certificate of Entitlement (COE) quotas and the increase in housing unit supply are expected to cap rental, accommodation, and private transport costs in the year ahead and can also contribute to the deceleration of Singapore’s inflation, said Gan.

Maybank analysts, Chua Hak Bin and Brian Lee Shun Rung believe Singapore’s inflation will moderate further due to the energy and food commodity prices being lower than last year’s highs, supply chain frictions dissipating, and stronger S$NEER curbing imported prices.

Given these factors, Maybank forecast the 2023 headline and core inflation to come at 5.1% and 4.3%, respectively.

UOB’s Senior Economist, Alvin Liew had a lower prediction for headline inflation (4.7%) but a higher forecast for core inflation (5.0%). 

Meanwhile, Gan believes that before the headline and core inflation momentum decline to 0.1% to 0.2% MoM in 4Q23, Singapore will see sticky prices in 3Q23.

Gan cited three reasons why prices could be sticky in 3Q23. 

The first reason  is the improving global economic dynamics which can “underpin consumer prices as demand stays resilient.”

“Second, potentially higher agricultural prices (see Figure 3) may be on the cards in the immediate months ahead, on the back of an El Nino weather condition in 2H23,” Gan said.

“Third, recent moves to cut oil supplies by Russia and OPEC may continue to support energy prices in the months ahead. We maintain our 2023 average Brent oil price forecast of USD 80 - 90 per barrel,” he added.