Singapore's recent reports on price indices reveal a concerning trend for both manufactured goods and domestic supply, which have experienced noteworthy year-on-year increases in June, surpassing the gains observed in May. This uptick is likely to pose challenges for the Monetary Authority of Singapore (MAS) and its ongoing monetary policy strategies. According to Statistics Singapore, the Singapore Manufactured Products Price Index recorded an impressive rise of 4.4% in June compared to the same month last year.
This increase marks a significant jump from the 3.5% rise reported in May. Analyzing further, the oil products sub-sector experienced a remarkable surge, with prices increasing by 7.3% year-on-year in June. In contrast, the non-oil manufactured products category registered a more moderate rise of 3.9%. The Manufactured Products Price Index specifically tracks the price movements of commodities that are produced within Singapore’s borders.
On the other hand, the Domestic Supply Price Index, which monitors both the prices of manufactured goods and imported products retained for domestic consumption, saw a year-on-year increase of 4.3% in June, following a smaller 2.7% rise in May. Among its components, the oil sub-index exhibited the most considerable increase of 11.4% on a year-over-year basis, while the non-oil index experienced a 2.7% rise during the same period. These fluctuations in the producer price indices are of critical importance as they can significantly influence inflation rates within the broader consumer price index (CPI).
Retailers often attempt to recoup rising costs, which can directly affect consumer prices. Recently, the MAS opted to maintain its monetary policy unchanged for the fifth consecutive meeting, a move that reflects the ongoing complexities within Singapore’s economic landscape. Furthermore, the central bank adjusted its CPI forecast for 2024 downward, highlighting its cautious outlook. Distinctively, the MAS utilizes an exchange rate-based monetary policy, diverging from the more conventional interest rate mechanisms adopted by many central banks globally.
In a bid to curb inflation, the MAS adjusts the exchange rate of the Singapore dollar against a basket of other currencies. Currently, the agency is focusing on achieving a stronger exchange rate for its currency. In its latest assessments, the MAS reduced the anticipated range for overall CPI headline inflation in 2024 from a previous estimate of 2.5% to 3.5%, now projecting it to range between 2% to 3%.
While the MAS does not implement an explicit inflation target, it has implied that maintaining CPI inflation below 2% aligns with its goal of price stability. Additionally, the CPI inflation rate for Singapore fell to 2.4% in June, down from 3.1% in May, as reported in the latest data from Statistics Singapore.
This decline is indicative of ongoing challenges as the MAS navigates a complex economic environment and aims to strike a balance between inflation control and economic growth..