Core inflation accelerates to 1.1% in August

Headline CPI, meanwhile, continued its slight ease.

According to various banks, the 1.1% yoy increase in core CPI reported in September 23, 2021. can be attributed to various factors.

For UOB, the core inflation was due to performance from all clusters.

“Singapore’s core inflation accelerated to 1.1% y/y in August 2021 (from July’s 1.0% y/y), the fastest pace since May 2019. Core inflation, which strips out private road transport and accommodation prices, was supported by almost all clusters except for clothing & footwear (-6.2% y/y), communications (-2.2% y/y) and miscellaneous goods & services (-0.1% y/y),” said UOB in a report.

OCBC, meanwhile, highlighted food inflation and other sectors as the reason for this. 

“Core CPI continued to accelerate to 1.1% yoy in August, up from 1.0% in July. In on-month sequential terms, core CPI also increased 0.2% mom nsa for the second straight month. Higher food inflation (mainly driven by fruits) and a smaller decrease in retail & other goods (amid higher personal effect prices) continued to underpin the core inflation picture in Singapore,” OCBC said in a separate report.

According to Maybank, this was due to the 6-month high of 1.5%. This was also acknowledged as one of the key drivers of core inflation prices.

“Key driver of core inflation was food prices, which rose to a 6-month high of +1.5% (vs. +1.1% in Jul) on the back of both non-cooked food (+1.4% vs. +0.7% in Jul) – mainly due to the surgein prices of fruits (+5% vs. +0.4% in Jul) - and prepared meals (+1.5% vs. +1.3% in Jul),” said Maybank.

Meanwhile, the 2.4% consumer price index (CPI) for August 2021 is in line with their current market estimates. This is the eighth straight month of inflation.

“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.”

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