Singapore's Core Inflation Drops to 2021 Levels, At 1.8%: Implications for Economic Growth and Consumer Spending

Singapore's core inflation rate has fallen to 1.8% in December 2024, reaching levels not seen since 2021. This decline, driven by a combination of global economic trends and the Monetary Authority of Singapore's (MAS) monetary policy, has significant implications for the country's economic growth and consumer spending in the near and medium term.



The primary factors contributing to the decline in core inflation include the easing of supply chain disruptions, moderation in food prices, and a slowdown in housing and transport costs. These factors align with broader global economic trends, such as the resolution of supply chain disruptions, improved global food supply, and a global economic slowdown. The MAS's appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band has also played a significant role in reducing imported inflation and curbing domestic cost pressures.

The decline in core inflation has both positive and negative implications for economic growth and consumer spending. On the positive side, the decrease in prices for goods and services increases consumer purchasing power, leading to higher spending and stimulating economic growth in the near term. Additionally, the decline in the cost of living can lead to increased consumer spending on discretionary items, further boosting economic growth in the medium term.

However, the decline in core inflation can also have negative implications. If the decline is due to a decrease in demand for goods and services, this could indicate a slowdown in economic activity. Furthermore, if the decline is due to a decrease in production costs, this could lead to a decrease in investment by businesses, as the potential for profit margins to increase is reduced.

In conclusion, the decline in core inflation in Singapore has both positive and negative implications for economic growth and consumer spending in the near and medium term. The key will be to monitor the underlying causes of the decline in core inflation and the overall economic conditions to determine the net impact on the economy. As the MAS continues to implement its monetary policy, it will be crucial to assess the effectiveness of the S$NEER policy band in controlling inflation and maintaining medium-term price stability.