Core inflation accelerates in April, led by health premium jump: UOB

Core consumer prices increased by 0.5% MoM, reversing the previous month's decline, whilst the YoY figure edged up to 0.7%.

Core inflation in Singapore rose more than expected in April 2025, driven largely by higher health insurance premiums and food prices, according to a report by UOB Global Economics & Markets Research released on Friday.

Core consumer prices increased by 0.5% MoM, reversing the previous month's decline, whilst the YoY figure edged up to 0.7%, above both market expectations and UOB’s forecast.

“The stronger core reading was largely driven by higher non-cooked food prices (Apr: 2.2% y/y, Mar: 1.6%) and an acceleration in the health insurance component (Apr: 13.3% y/y, Mar: 8.9%),” UOB analysts Jester Koh and Peter Chia wrote.

The uptick in health-related costs followed “the commencement of the phased increase in MediShield Life premiums associated with coverage enhancement.”

The note explained that the inflationary impact was further amplified by changes to the Consumer Price Index (CPI) weights.

“With the recent rebasing of the CPI, the impact of the increase in insurance premiums on the overall inflation reading is more accentuated,” it said.

Health insurance’s weight in the CPI basket nearly tripled from 0.82% to 2.25%, and its share in the core inflation basket rose from 1.25% to an estimated 3.49%.

Whilst some sectors saw price increases, broad deflationary pressures persisted. Categories such as clothing & footwear, household durables, and recreation recorded year-on-year price declines. Notably, a 10% hike in water prices contributed to a marginal uptick in utilities costs.

“Price pressures remain contained overall,” the report stated, although it acknowledged a slight rise in inflation pervasiveness—measured by the share of CPI items exceeding 2% y/y inflation—which rose to 29.9% in April from 26.8% in March.

Despite April's inflation uptick, UOB maintained its full-year 2025 forecast for core inflation at 0.7%, with downside risks prevailing.

“If the weakness in core momentum persists, the 2025 full-year average core inflation is likely to undershoot MAS’ forecast range of 0.5–1.5%,” the analysts warned.

On monetary policy, UOB sees room for the Monetary Authority of Singapore (MAS) to act. “Our base case calls for MAS to ease policy further in the upcoming Jul 2025 MPS via a complete flattening of the S$NEER slope,” the report stated.

It pointed to similarities with the April 2016 policy episode, when MAS eased due to low inflation and subpar growth.

The team pushed back against market calls to widen the policy band, warning that such a move would “provide the latitude to accommodate a stronger S$NEER, tantamount to a de facto tightening… which could amplify headwinds to growth or induce deflationary risks.”

UOB’s growth forecast for 2025 remains modest at 1.7%, with the economy expected to operate below potential through 2026. With global inflationary pressures easing and the domestic labor market cooling, the report concluded that monetary policy easing was both timely and necessary.