Singapore Inflation Hits Four-Year Low: What's Next?

Singapore's inflation rate has hit a four-year low, with the consumer price index growing by just 0.9% year on year in February 2025. This marks a significant slowdown from the 1.2% growth seen in January and is well below the 2.4% average seen in 2024. The Monetary Authority of Singapore (MAS) has responded by loosening its monetary policy for the first time since 2020, allowing for a more gradual appreciation of the Singapore dollar. But what does this mean for the country's economic outlook, and what factors are driving this inflation slowdown?

The slowdown in inflation is being driven by a number of factors. Core inflation, which excludes accommodation and private transport costs, fell to 0.6% in February, down from 0.8% in January. This is the slowest pace since June 2021 and marks the fifth straight month of deceleration. The MAS attributes this to a moderation in consumer price increases across a broad range of goods and services, as well as contained business cost- and demand-driven inflationary pressures.

But it's not just domestic factors at play. Global economic policy uncertainty has risen, mainly reflecting expectations of increasing trade policy frictions. This uncertainty, along with the normalization of manufacturing and trade activity following a period of frontloading exports, is expected to contribute to a slower global growth rate over 2025. The MAS has downgraded its forecasts for both headline and core inflation in 2025, with headline inflation now expected to average 1.5-2.5% and core inflation 1.0-2.0%.

So, what does this mean for Singapore's economic growth? The MAS has projected that GDP growth will moderate to 1.0-3.0% in 2025, down from the 4.4% seen in 2024. This is due in part to the impact of shifts in global trade policies, which could weigh on the domestic manufacturing and trade-related services sectors. However, still-strong wage growth amid supportive labor market conditions is expected to support steady consumer spending in advanced economies.

But there are risks to this outlook. An escalation of trade frictions could be inflationary for some economies, although the MAS expects this impact to be offset by the disinflationary drags exerted by weaker global demand. Additionally, while the MAS expects imported costs to stay moderate due to favorable supply conditions in key food commodity markets and projected global oil price declines, there is always the risk of unexpected shocks.

In conclusion, Singapore's inflation slowdown is a complex story driven by both domestic and global factors. While the MAS's policy loosening and downgraded inflation forecasts may be seen as a cause for concern, the outlook for economic growth remains cautiously optimistic. However, investors and policymakers alike will need to keep a close eye on global trade policy developments and other potential risks to the outlook.