How much could inflation increase amidst Israel-Iran conflict?

Singapore's inflation in 2025-2026 is at risk of exceeding the MAS's target.

The increase in Brent crude oil prices driven by the ongoing conflict between Israel and Iran is expected to fuel core inflation in Singapore.

In a new analysis, UOB Global Economics and Markets Research laid out three scenarios under different crude oil price assumptions.

The report noted that “a surge/plunge in Brent crude oil prices tends to be followed by a corresponding rise/fall in both headline and core inflation.”

“However, these effects are likely conflated with swings in global demand rather than a mechanistic impact due to changes in oil supply,” it added.

Under a baseline scenario wherein crude oil prices to remain elevated, averaging around $102.56 per barrel (US$80/bbl) in the second half of 2025 but normalises to $89.74/bbl (US$70/bbl) in the first half of 2026, UOB expects a full-year core inflation forecast for both 2025 and 2026 of 0.8% and 1.6%, respectively.

These estimates are higher than its previous projections of 0.7% and 1.3%, “assuming a weaker passthrough from higher oil prices, with the updated projections still below MAS’ [Monetary Authority of Singapore] desired core inflation of ‘just under 2%’ that is consistent with overall price stability.”

If prices continue to increase, reaching $115.38/bbl (US$90/bbl), UOB expects core inflation to rise to 2.2% by the first quarter (Q1) of 2026 and average 1.0% and 2.0% respectively in 2025 and 2026.

Meanwhile, the spiking of prices to $128.21/bbl (US$100/bbl) could lead to a core inflation of 2.6% in Q1 2026, later moderating to 2.1% in the second half of next year, assuming oil prices taper off gradually. Core inflation this year could average 1.2%, then 2.3% the following year under this scenario.

UOB said that the “upside scenario” is becoming more possible.

“The attendant shocks on core inflation owing to higher oil prices may mean that MAS is likely to maintain its 2025 core inflation forecast range at 0.5-1.5% in the upcoming Jul 2025 MPS,” it said.

“Nonetheless, we assess that the economic outlook still warrants a further easing move given in the Apr 2016 easing, MAS then assessed that core inflation is likely to come in the ‘lower half of the 0.5%-1.5% forecast range’ with the level of activity ‘slightly below potential,’ and the current outlook is arguably similar,” UOB noted.

$1 = US$0.78