Singapore’s core inflation rate has once again fallen below expectations, registering a year-on-year increase of just 0.5% in March 2025, according to UOB Global Economics and Markets Research. This figure is lower than both Bloomberg’s median estimate and UOB’s own forecast of 0.7%. The report highlights significant contractions in key Consumer Price Index (CPI) categories, including information and communication, household durables and services, and recreation, sport, and culture.
The report notes that inflation pervasiveness, which measures the share of items in the CPI basket with year-on-year inflation above 2%, has decreased to 26.8% in March from 31.2% in February. This decline suggests early signs of broad-based deflationary pressures, with approximately 38% of items experiencing a year-on-year price drop.
UOB has revised its full-year 2025 average core inflation forecast down to 0.7% from 1.0%, and its headline inflation forecast to 1.0% from 1.3%. Factors influencing these adjustments include softer sequential price increases in several CPI categories, a 10% water price hike effective from 1 April 2025, and a decline in electricity tariffs expected in the third quarter.
The report also discusses the potential for monetary policy adjustments. UOB suggests that economic growth is likely to fall below potential in 2025, with a GDP forecast of 1.5%. This could lead to a more accommodative Singapore Dollar Nominal Effective Exchange Rate (S$NEER) to cushion growth risks. The report indicates a 20% probability of an off-cycle flattening of the S$NEER slope before the scheduled July 2025 Monetary Policy Statement, which could result in looser monetary conditions.
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