SINGAPORE — By the end of the year, prices of domestic goods and services will rise at a slower pace than previously expected, said the Monetary Authority of Singapore (MAS) chief Ravi Menon on Wednesday (July 5), while debunking the myth that an inflow of assets from ultra-wealthy persons has been driving up costs in Singapore.

Speaking at a media conference on the MAS Annual Report and Sustainability Report for 2022 and 2023, Mr Menon said that the authority is lowering its forecast for the consumer price index (CPI) of all items to 4.5 to 5.5 per cent for 2023, down from 5.5 to 6.5 per cent previously.

He also spoke at length about the impact of inflow of wealth into Singapore, including those from the growing number of ultra-high-net-worth individuals (UHNWIs). 

“Wealth inflows into Singapore have little effect on the exchange rate, domestic inflation, property prices or car price,” said the managing director of MAS.

“The reason for this is simple: While the wealth is managed here, most of it is invested outside Singapore… Singapore is just an intermediary for these flows.”

Pop star Taylor Swift was another talking point during the briefing after a member of the media asked whether the singer’s six-day concert in Singapore next year will fuel inflation.

While some countries, such as Sweden, have attributed unexpected inflation spikes due to performances by pop stars like Swift and Beyonce, MAS' deputy managing director for economic policy and chief economist, Edward Robinson, said the impact of such events is  “fairly contained”.

'SHARPER-THAN-EXPECTED' DECLINE IN CAR, ACCOMMODATION PRICES LOWERS FORECAST: MAS CHIEF

Mr Menon said that the MAS is lowering its CPI forecast as a result of a sharper-than-expected decline in car prices and accommodation costs from January to May 2023.

“The announced increases in the supply of rental units and Certificates of Entitlement should help secure a moderating inflation profile in these components in the year ahead,” he said.

“The relatively benign inflation outlook is of course premised on no new shocks to global supply and no reversal in domestic wage momentum.”

MAS also maintained its core inflation forecast — which excludes accommodation and private transport costs —  at around 2.5 to 3 per cent year-on-year.

"Excluding the impact of the GST (Goods and Services Tax) hike, year-end core inflation would be closer to 2 per cent, said Mr Menon.

He said that besides a slowing down of the price increases in accommodation and transport, imported inflation should also remain negative over the rest of the year.

Imported inflation is when prices rise due to an increase in the cost of imported products. 

“The decline in global energy and food prices should weigh on the costs of intermediate and final consumer goods, and the strengthening Singapore dollar will further dampen imported inflation,” said Mr Menon.

Beyond that, Singapore’s labour market is showing signs of cooling off as the non-resident workforce alleviates labour shortages in sectors such as healthcare, social services and transport.

“Labour demand is easing, especially in sectors most exposed to slower global demand such as manufacturing and ICT (information and communications technology) services. Easing in labour market tightness should mitigate wage pressures,” he said, adding that the pace of cost pass-through into prices should moderate as domestic demand wanes.

WEALTH INFLOWS 'LITTLE IMPACT' ON DOMESTIC COSTS

While the number of single family offices awarded tax incentives has grown — 1,100 as of end-2022, up from 700 in 2021 — they make up just 2 per cent of the S$5.4 trillion total assets managed in Singapore, said MAS. 

The bulk of such assets also come from institutional investors, with only 20 per cent of total assets managed in Singapore from 2017 to 2021 coming from non-retail individual clients such as family officer, clients of external asset managers, private trusts and high net-worth individuals.

MAS' deputy managing director of markets and development, Mr Leong Sing Chiong, said that while Singapore may have one of the fastest-growing number of such offices, their maturity and size differ from those in the United States and Europe.

This is because the concept of such offices in Asia is still much newer and hence not as established compared to those from the US and Europe.

Mr Menon added that the step-up in inflation since late 2021 was mainly due to sharp increases in global energy and good prices, and stronger domestic wage growth.

“As for private residential properties, purchases by all foreigners have accounted for a low share of transaction volume over the last three years, averaging about 4 per cent,” he said, adding there were no purchases by single family offices in the last three years.

“Likewise, single family offices and their foreign employees account for a tiny proportion of car purchases in Singapore.”

Mr Menon added that the authority has been providing tax incentives to single family operators to help create jobs, generate demand for domestic service providers and channel capital towards local enterprises.

However, it will be adjusting its tax incentives for single family offices to encourage them to invest more in Singapore and increase contributions towards environmental and social causes. 

This was earlier announced by the authority’s chairman Tharman Shanmugaratnam in June at the 50th anniversary of the Association of Banks in Singapore.

Providing more details about the adjustments, Mr Menon said such offices will be encouraged to invest in Singapore companies and the local equity market as MAS will be expanding the scope of the tax incentive to recognise all investment in non-listed Singapore operation companies, and not just private equity investments, among other things.

Climate-related investments globally will also be recognised for the purpose of assessing if a family office has met its investment requirement, Mr Menon announced.

The authority will be encouraging such offices to conduct philanthropic activities through Singapore by recognising donations to local charities alongside normal business spendings. 

A Philanthropy Tax Incentive Scheme for family offices was also launched on Wednesday, which will allow qualifying donors in Singapore to claim 100 per cent tax deduction, capped at 40 per cent of the donors' statutory income, for overseas donations made through local intermediaries.

These local intermediaries include those approved by MAS and selected grantmakers under a scheme by the Ministry of Culture, Community and Youth.