The smallest rise in Singapore's key consumer price gauge in more than two years in July has created space for the central bank to consider easing policy, economists said on Friday. The core inflation index, which excludes private road transport and accommodation costs, rose 2.5% in July from a year earlier, official data showed, coming in below both the 2.9% forecast in a Reuters poll, and the 2.9% rise in June.
It was the smallest annual increase in the core price index since February 2022, when it rose 2.2%.
OCBC economist Selena Ling said while core inflation was moderating faster than the market had expected, it was unlikely to go back to pre-Covid levels of 1-2%.
"It bodes well for it to head back to 2% in 2025," she said. "I think it will likely bump around the 2% handle until there is a recession, easing labour market or a glut in energy supply."
Inflation in the Asian financial hub has cooled from a peak of 5.5% in early 2023, but only dropped below 3% in June.
Ling said it was possible that the central bank would loosen monetary policy in its October meeting, while Maybank economist Chua Hak Bin saw an easing as more likely at the January review.
The Monetary Authority of Singapore (MAS) has not changed policy since a tightening in October 2022.
Headline inflation in February was up 2.4% from the same month last year, lower than the 2.5% forecast in the poll. It was the lowest headline inflation rate since August 2021.
The MAS expects core inflation to ease more significantly in the final quarter of this year. It has forecast core inflation at 2.5% to 3.5% this year.
Core inflation was running at 3.1% in the first seven months of the year from the same period in 2023, Singapore Department of Statistics said.
Last week, the trade ministry adjusted its GDP growth forecast range for 2024 to 2.0% to 3.0%, from 1.0% to 3.0% previously after the economy posted stronger-than-expected second quarter growth.
