Inflation pressures build despite softer June core CPI

Economists flag electricity tariffs, oil prices, and El Niño as key risks in H2.

Singapore's inflation is expected to accelerate in the second half of 2026 despite June's softer-than-expected core inflation reading, with economists pointing to broadening price pressures, higher electricity tariffs, rising oil prices, and weather-related risks as factors likely to push inflation higher in the coming months.

Core inflation rose to 1.6% year-on-year (YoY) in June from 1.4% in May, below consensus expectations. However, Nomura, United Overseas Bank (UOB), and RHB all said the latest data suggests inflationary pressures are beginning to spread across the economy.

Nomura said the June increase likely marked the beginning of a sustained rise in core inflation after two months of subdued readings. It attributed the pickup to higher food prices and airfares, which it said were starting to reflect the impact of higher energy prices following the conflict involving Iran.

The bank also noted that its preferred measure of "core-core" inflation, which strips out raw food and energy items, edged up to 1.3% in June from 1.2% in May, signalling broader underlying price pressures. It maintained its 2026 core inflation forecast at 2.1%, above the consensus forecast of 2.0%.

UOB also said the headline June figure understated the underlying trend. Whilst core inflation rose by only 0.1% month-on-month, the bank said price pressures broadened across food and recreation categories. Food prices increased 0.3% from May after remaining flat previously, whilst recreation, sports, and culture costs rose 0.7% as hotel prices rebounded 1.9% and package holiday prices remained elevated during the school holiday period.

Airfares also rose 3.8% month-on-month, which UOB attributed to the delayed pass-through of higher jet fuel costs.

The bank said one of the few factors restraining inflation remained intense competition amongst telecommunications providers. Prices for internet and bundled telecommunication services continued to fall, contributing to a third consecutive monthly decline in the information and communications component of core inflation.

UOB nevertheless said inflation had become more pervasive. The share of the consumer price index basket recording inflation above 2% increased to 36.3% in June from 31.2% in May, suggesting higher energy costs were beginning to feed through into a wider range of goods and services. It maintained its 2026 core inflation forecast at 1.9% but warned of upside risks from higher energy prices and a potential Super El Niño.

RHB similarly said June's data suggested the recent moderation in inflation may not continue smoothly in the second half of the year. It expects higher energy costs to lift transport, utilities, food, and services prices if geopolitical tensions in the Middle East continue to disrupt oil markets.

The bank highlighted Singapore's 17% increase in regulated electricity tariffs and a 7.1% rise in gas tariffs for the July to September quarter as immediate sources of inflationary pressure. Based on its estimates, the electricity tariff increase alone could lift the Utilities and Other Fuels component by about 6.8% month-on-month in July.

RHB also warned that Singapore's dependence on imported food leaves it vulnerable to weather-related supply disruptions. It forecasts food inflation will accelerate to 2.7% in the second half of the year from 1.7% in the first half if a stronger El Niño reduces agricultural output across key producing regions.

All three banks identified higher oil prices as a key risk to the inflation outlook. Nomura said food inflation and airfares were already responding to higher energy costs, whilst UOB and RHB warned that Brent crude, trading around $122.74 (US$95) per barrel, could raise production, transport, and utility costs as higher prices work their way through supply chains.

UOB also cited an 81% probability that a very strong El Niño would develop between October and December, posing an additional upside risk to food prices.

Despite the inflation risks, all three expect the Monetary Authority of Singapore to leave monetary policy unchanged at its July review, although UOB said there remains a 40% probability of a steeper appreciation path for the Singapore dollar to counter imported inflation.