Economists anticipate that the Monetary Authority of Singapore (MAS) will keep its monetary policy unchanged during the upcoming review in January 2024. This expectation follows a slight increase in Singapore’s headline inflation for September, which rose to 4.1% year-on-year from 4% in August, and a drop in core inflation to its lowest level in 18 months.

The latest data from MAS and the Ministry of Trade and Industry (MTI), released on October 23, 2023, indicated that the uptick in headline inflation was primarily driven by an increase in private transport costs. However, core inflation, which excludes accommodation and private transport, decreased to 3% in September from 3.4% the previous month, reflecting lower prices in food and retail goods.

Despite the unchanged monetary policy in 2023, the trade-weighted Singapore dollar nominal effective exchange rate (S$NEER) remains near the upper limit of its band. This positioning is expected to help mitigate imported cost pressures in the near future, according to OCBC chief economist Selena Ling. She has also revised her full-year inflation forecast for 2023 to 4.8%, up from 4.5%, due to the ongoing high certificate of entitlement (COE) premiums.

Ling pointed out that current inflation dynamics are uncertain, especially given the latest geopolitical developments in the Middle East, which could impact energy prices. RHB’s acting group chief economist Barnabas Gan noted that supply shocks from OPEC and its allies might lead to increased oil prices, with food prices also expected to rise in the next six to twelve months due to prevailing El Niño conditions.

Many analysts believe that the MAS has likely concluded its tightening cycle after five successive rate hikes since October 2021. Ling remarked that the easing core inflation, coupled with the factors pushing headline CPI higher, is unlikely to prompt a change in monetary policy.

Barclays’ senior regional economist Brian Tan highlighted that core inflation is expected to remain elevated in 2024, primarily due to the impending increase in the goods and services tax (GST) set for January 2024. He suggested that the MAS would likely overlook these administered price adjustments, as it did with the first GST hike.

Looking ahead, the MAS predicts a further decline in core inflation, expecting it to range between 2.5% and 3% year-on-year by December. The central bank anticipates core inflation to average around 4% for 2023, while headline inflation is expected to average approximately 5%.

On a month-to-month basis, headline inflation increased by 0.5% in September, primarily driven by higher private transport costs. Core inflation saw a marginal rise of 0.1% due to increased service and food costs.

Despite the rise in headline inflation, lower inflation rates were recorded in three out of six key consumer price index (CPI) categories. Private transport was the only category that reflected an increase in inflation. Notably, electricity and gas costs remained unchanged from the previous month, while service inflation held steady despite fluctuations in telecommunications costs.

In summary, while headline inflation shows signs of rising, the underlying trends suggest a stabilizing core inflation environment, leading economists to expect no major changes in the MAS’s monetary policy in early 2024.