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Economists expect headline inflation to hit 5% in 2022, leading to slightly slower economic growth: MAS survey

SINGAPORE — Private economists expect headline inflation in Singapore to hit 5 per cent this year, up from their March estimate of 3.6 per cent, leading them to slightly downgrade their forecast for full-year economic growth.

Economists expect headline inflation to hit 5% in 2022, leading to slightly slower economic growth: MAS survey
  • A survey of private economists by MAS found that they expect headline inflation to come in at 5 per cent for 2022
  • This is markedly higher than their average forecast earlier in March of a 3.6 per cent rise in the price of goods and services
  • The economists also expect Singapore's economy to expand at a slightly slower 3.8 per cent in 2022, down from the 4 per cent they tipped in March
  • They expect core inflation, which excludes transport and accommodation, to hit 3.4 per cent
  • Still, they expect inflation to ease in 2023

SINGAPORE — Private economists expect headline inflation in Singapore to hit 5 per cent this year, up from their March estimate of 3.6 per cent, leading them to slightly downgrade their forecast for full-year economic growth.

A survey of the economists by the Monetary Authority of Singapore (MAS), published on Wednesday (June 8), showed that, on average, they now expect the economy to expand by 3.8 per cent in 2022, down from their March estimate of 4 per cent.

The quarterly survey of professional forecasters also found that the average forecast for core inflation, which excludes private transport and accommodation costs, rose from 2.7 per cent previously to 3.4 per cent for 2022.

The survey collated responses from 24 economists and analysts who closely monitor the Singapore economy.

Inflation, the measure of how fast the prices of goods and services rise, is making headlines around the globe as the biggest economic challenge of 2022. In the world's largest economy, the United States, for example, inflation is at 40-year highs.

Since the start of the year, a host of pressures — such as the surge in economic activity as economies emerge from the pandemic, the war in Ukraine, and supply chain problems — have led to higher consumer prices across the board.

The latest survey findings are in line with the official 2022 forecast by MAS, which has flagged the risk of higher than previously anticipated inflation in the months ahead.

Even though the economists expect higher inflation in 2022, they believe it will ease next year. Headline inflation is expected to come in at 3 per cent in 2023, while core inflation is forecast to be 2.8 per cent.

The economists polled expect the economy to grow by 4.8 per cent in the current second quarter, up from 3.7 per cent growth recorded in the first quarter, with the sharper-than-expected rise in inflation, driven mainly by higher energy and food prices, still cited as the top downside risk.

These factors were named by 88.2 per cent of respondents as compared with 77.8 per cent in the previous survey

The economists were also concerned about the risks resulting from slower economic activity in China, where extended Covid-19 lockdowns have disrupted economic activity, as well as weaker-than-expected global growth.

Still, 60 per cent of the economists see firmer growth in China as the economy reopens as offering upside potential for Singapore's economy, up from only 29.4 per cent who felt that way in March.

They are also hopeful that an accelerated revival in travel and tourism-driven by ongoing border reopening, as well as a stronger-than-expected expansion in manufacturing output, will benefit Singapore's economy.

The economists polled also expected:

  • Corporate profits to increase year-on-year (55.6 per cent)
  • Private residential property prices to increase (70 per cent)
  • Corporate bond spreads to remain stable (44.4 per cent) while one-third expect them to widen, and the remainder anticipate that they will narrow

When it comes to the financial market and lending conditions here, respondents cited tighter global financial conditions, spillovers from weakening economic activity and financial markets in China, an escalation in geopolitical tensions, and a stronger currency as the top factors that could potentially affect them. 

They also identified the slower-than-expected pace of monetary policy tightening among major central banks as an upside driver of the domestic financial market and lending conditions, among others.

WHAT ECONOMISTS SAY

Economists who were polled in the latest MAS survey told TODAY that since the last forecast in March, the Russia-Ukraine conflict has heightened and contributed to further spikes in prices, especially for energy and food-related products, resulting in an elevated inflation threat.

But DBS senior economist Irvin Seah predicted that domestic inflation has “more or less peaked” and will stay elevated for months to come before easing off at the end of the year.

CIMB bank economist Song Seng Wun said other factors may also include food protection policies that have been implemented by countries such as India, Indonesia and Malaysia, which have restricted exports to goods such as sugar, palm oil and chicken respectively.

Aside from the elevated commodity prices, the tight labour market also presents risks, said UOB senior economist Alvin Liew.

Agreeing, Maybank Kim Eng's economist Chua Hak Bin said there is some risk of a “wage-price spiral”, the phenomenon of price increases as a result of higher wages, as workers demand higher wages to compensate for higher prices.

But Mr Seah said Singapore has yet to reach this stage as overall productivity growth is still positive, adding that Singapore will be able to avert this as long as productivity growth does not fall below wage growth.

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MAS inflation economists cost of living

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