Singapore Inflation Cooled in 2024, Nudging Open Door to Monetary Easing

Singapore's inflation rate cooled in 2024, with the annual inflation rate slowing to 2.7% in March and holding steady at 2.7% in April. This trend, driven by several key factors, has created a more favorable economic landscape and raised expectations for a potential easing of monetary policy. The Monetary Authority of Singapore (MAS) has maintained its policy settings, keeping the slope, width, and center of the currency band unchanged, to help blunt imported inflation and maintain price stability.

Key factors contributing to the cooling of inflation in Singapore include:

1. Easing of global oil prices: The decline in global oil prices led to lower transportation and energy costs, which had a significant impact on the overall inflation rate. This factor was particularly relevant in March 2024, when the annual inflation rate fell to its lowest level since September 2021.
2. Moderating food prices: The stabilization of food prices, driven by improved supply chain stability and reduced global demand, also contributed to the easing of inflation. This was evident in the decline of food inflation from 3.8% in February to 3% in March.
3. Revised healthcare subsidies: The introduction of revised healthcare subsidies provided relief to households, particularly in essential services, helping to alleviate cost pressures and contribute to the overall decline in inflation.
4. Normalization of global tourism levels: The gradual recovery of global tourism levels led to a reduction in services inflation, as sectors such as hospitality and transportation became more stable. This factor was reflected in the MAS's anticipation of a gradual reduction in services inflation in 2025.



The MAS's response to the changing inflation dynamics has been to maintain its monetary policy settings, despite global easing trends. This decision was made as inflation remained elevated in Singapore, with the core inflation rate picking up to 2.7% in August, exceeding market estimates. The MAS assessed that its current policy settings were still consistent with medium-term price stability.

The MAS's decision to maintain its policy settings aligns with its use of the exchange rate as its main policy tool rather than interest rates. By keeping the local dollar on an appreciating path, the MAS aims to blunt imported price pressures. This approach contrasts with the interest-rate cuts seen in most of the developed world, reflecting the cooling inflation elsewhere that has yet to fully translate to Singapore, which imports many basic goods.

In conclusion, the cooling of inflation in Singapore in 2024, driven by several key factors, has created a more favorable economic landscape. The MAS's response to these dynamics has been to maintain its monetary policy settings, keeping the slope, width, and center of the currency band unchanged. As inflation remains elevated, the MAS continues to closely monitor the situation and may adjust its policy stance in the future if necessary.