The recent escalation in the Israel-Iran conflict has led to a significant rise in Brent crude oil prices, now ranging between US$75-80 per barrel, according to UOB Global Economics and Markets Research. This increase could have substantial implications for Singapore’s core and headline inflation, with potential further escalation pushing prices above US$100 per barrel.
UOB’s analysis indicates that approximately 7.7% of Singapore’s Consumer Price Index (CPI) basket is directly affected by oil and gas prices, impacting sectors such as electricity, gas, and transport services. The research suggests that for every US$1 increase in Brent crude oil prices, year-on-year core inflation could rise by 5-6 basis points.
The report outlines three potential scenarios for Singapore’s inflation trajectory. The baseline scenario, which assumes a gradual de-escalation of tensions, predicts crude oil prices averaging US$80 per barrel in the second half of 2025, normalising to US$70 in the first half of 2026. Under this scenario, core inflation is expected to rise to 0.8% in 2025 and 1.6% in 2026.
In a further escalation scenario, where oil prices reach US$90 per barrel, core inflation could rise to 2.2% by the first quarter of 2026. An adverse scenario, with prices spiking to US$100 per barrel, could see core inflation surge to 2.6% in early 2026.
UOB notes that the Monetary Authority of Singapore (MAS) may maintain its core inflation forecast range at 0.5-1.5% for 2025, given the current economic outlook and potential inflationary pressures from rising oil prices.
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