Rising Airfares and Services Inflation Contribute to Increased Cost of Living Concerns
SINGAPORE: Singapore’s core inflation rose to 2.1% in December on a year-on-year basis, up from 1.6% in November, according to official data released on Monday (Jan 24).
This increase was primarily driven by higher services inflation, notably a significant rise in airfares reflecting the increased costs associated with travel under the vaccinated travel lanes (VTL), as stated in a joint media release by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).
The overall inflation, measured by the headline consumer price index, jumped to 4% year-on-year in December, up from 3.8% the previous month.
For the entirety of 2021, core inflation was recorded at 0.9%, a rise from -0.2% in 2020, while the CPI-All Items inflation increased to 2.3%, compared to -0.2% the year before.
“Given the recent stronger-than-expected inflation outcomes, including the sharp increase in airfares, MAS and MTI are currently reviewing the forecast ranges for CPI-All Items inflation and MAS Core Inflation for 2022,” they announced.
Core inflation excludes accommodation and private transport costs, as these elements are significantly influenced by supply-side administrative policies and tend to be volatile.
Steep Increase in Airfares
On a year-on-year basis, services inflation in December rose to 2.6%, up from 1.9% in November, mainly driven by the sharp rise in airfares.
“The significant increase in airfares in December was attributed to higher base fares and the additional costs associated with mandatory COVID-19 testing for newly introduced VTL flights,” MAS and MTI explained.
In addition to airfares, costs for point-to-point transport services, tuition, and other fees also experienced a faster increase.
Accommodation inflation rose to 3% in December, up from 2.7% in November, as housing rents accelerated. Electricity and gas inflation surged to 10.7% due to a marked increase in average household electricity prices, while food inflation rose to 2.1%.
Private transport inflation decreased to 15.5%, as the rate of increase in car prices and petrol costs eased, whereas the cost of retail and other goods fell at a slower rate of -0.7%.
Inflation Outlook
MAS and MTI noted that “significant uncertainty” surrounds the near-term inflation outlook, influenced by air travel costs and commodity prices, such as food and oil.
Domestically, the recovery in the labor market is expected to strengthen with the easing of COVID-19 restrictions and a revival in economic activity.
“Wages have risen and are expected to continue increasing steadily as slack in the labor market diminishes. As the domestic COVID-19 situation stabilizes, consumer demand is anticipated to strengthen, potentially leading to a greater pass-through of rising business costs to consumer prices,” they said.
On the global front, inflation remains elevated and is likely to persist for some time before gradually easing toward the end of the year.
