Prime Highlights:
Singapore’s inflation is projected to remain within the official forecast range of 1.5-2.5% in 2025, supported by higher consumption and potential government measures.
Core inflation rose 0.5% month-on-month in December 2024, with a 1.8% year-on-year increase, primarily driven by higher food prices.
The Progressive Wage Model (PWM) is expected to further elevate food prices in 2025, particularly in the food services sector.
Key Background:
Singapore’s inflation is expected to remain within the official forecast range of 1.5-2.5% in 2025, supported by higher consumption spending and potential government interventions. However, downside risks stemming from global economic uncertainties and geopolitical tensions could pose challenges to the inflationary outlook.
UOB reported a 0.5% month-on-month increase in core inflation for December 2024, leading to a 1.8% year-on-year rise, slightly above market expectations. The surge was largely driven by rising food inflation, which makes up 21.1% of the overall Consumer Price Index (CPI) basket. The Progressive Wage Model (PWM), which mandates higher wages in the food services sector, is expected to continue exerting upward pressure on food prices in 2025. The food services sector, contributing 14.3% to the CPI basket, faces increased labor costs as wages for roles such as cooks, waiters, and kitchen assistants are anticipated to rise further in March 2025, intensifying inflationary pressures.
Despite these concerns, UOB indicated that the broader inflation trend remains subdued, with a slowdown in inflation momentum compared to previous years. RHB, on the other hand, noted that both domestic and global factors will influence Singapore’s inflation trajectory. Increased consumer spending during festive periods, such as Chinese New Year, could fuel demand and contribute to inflationary pressures.
Regarding monetary policy, both UOB and RHB agree that the Monetary Authority of Singapore (MAS) is likely to maintain its current stance during the next policy review. While RHB expects no immediate changes, UOB suggests the potential for a 50-basis point reduction in the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) slope to mitigate external shocks. Both institutions maintain a cautiously optimistic outlook, expecting gradual easing of inflation, bolstered by stable global commodity prices and controlled domestic costs.
