Rising Business Costs, Import Price Pressures to Drive Core Inflation in Singapore, Economy News & Top Stories
SINGAPORE – Singapore’s core inflation will continue to rise in the coming quarters amid rising business costs and persistent pressure on import prices, the central bank said in its latest macroeconomic review released on Thursday. October 28.
The Monetary Authority of Singapore (MAS) noted in its biannual review that while corporate cost pressures have been relatively contained so far, they are expected to accelerate next year due to factors such as shrinking government support measures.
As the national economy reopens and private consumption picks up, these accumulated trade costs will be passed on to consumers.
Externally, disruptions to global food production and consumer goods supply chains are likely to take time to subside, he added.
Inflated shipping and delivery costs, as well as material costs, which have weighed on business margins could also be passed on to consumers in the coming year, especially if demand persists.
For example, continued shortages of semiconductor chips for at least a year could keep consumer electronics prices firm, MAS noted.
The ongoing logistical crisis could continue to drive up global food prices, which would lead to increased price inflation for imported food in Singapore in the coming months and higher prices for uncooked food in turn.
Singapore’s central bank tightened monetary policy earlier this month in light of the expected rise in inflation, with the aim of ensuring price stability over the medium term.
The MAS predicts that core inflation – which excludes accommodation and private road transport costs – will drop from 1% to 2% next year. Headline inflation is expected to average between 1.5% and 2.5%.
Core inflation in Singapore increased in the third quarter of 2021 mainly due to external factors such as rising energy and food prices. The rise in labor costs was also reflected in the prices of some consumer services.
In its review, the central bank noted that globally, inflation has grown faster in economies where demand recovery has been stronger, such as the United States and the euro area.
In contrast, the slower recovery in demand in many Asian economies has weakened the pass-through of higher upstream costs to consumers.
Maybank Senior Economist Kim Eng Chua Hak Bin noted that in addition to rising energy and food prices, domestic price pressures are a growing concern.
“The rise in wages and logistics costs is partly passed on to consumers via higher prices,” he said, citing how the food and beverage industry is raising menu prices due to costs, despite challenges from the Covid-19 pandemic and increased restrictions.
Wage pressures can also manifest in health care costs, added Dr Chua.
CIMB Private Banking economist Song Seng Wun noted that external inflationary pressures are expected to persist, as global supply chain disruptions remain a concern and material costs continue to rise.
He noted that with demand picking up, persistent constraints on the supply side would mean higher prices are inevitable.
Labor demand will increase in 2022
The MAS also said that Singapore’s labor market recovery remains on track overall, although heightened alert measures to curb Covid-19 infections had temporary moderating effects in the second quarter of the year. .
Demand for resident and non-resident workers is expected to increase in 2022 as the economy grows at a “above trend rate,” he added.
However, he pointed out that the overall level of employment may not return to pre-Covid-19 levels, even by the end of 2022, in part because companies are expected to increase labor productivity and Demographic factors continue to weigh on the growth of the resident workforce. .
The central bank expects resident employment to continue growing in 2022, although it could slow from this year as the resident workforce is absorbed more.
“As the labor market tightens and business and worker confidence recovers alongside steady economic expansion, resident wage growth is expected to strengthen next year,” MAS said.
Non-resident employment is also expected to stabilize and then gradually increase as Singapore gradually shifts towards managing Covid-19 as an endemic standard and vaccination rates in the region improve, allowing more of workers to enter.
But the MAS has also warned that a significant pullback on the way out of the pandemic or weaker-than-expected global growth could slow the pace of Singapore’s labor market recovery.
Government policies aimed at improving the outcomes of the lowest paid Singaporeans – such as extending the graduated wage model to the retail sector and extending the qualifying local wage requirement to all employing companies of foreign workers from September 2022 – will also add slightly to overall wage growth in the economy, MAS said.
He stressed that the demand for labor is likely to continue to increase at a sustained rate in sectors such as information and communications, health and social services, and financial and insurance services. In these sectors, both employment and vacancies have exceeded pre-pandemic levels, suggesting tighter labor market conditions.
Labor costs for non-residents could also be higher in sectors where companies need to retain existing workers, such as construction and manufacturing, the MAS added.