Travel costs, weak demand, and government subsidies drive lowest inflation since 2021

Singapore’s core inflation slowed sharply to 0.3 per cent in August, the lowest in more than four years, surprising economists who had expected it to remain unchanged. The decline was mainly due to weaker travel-related services, subdued wage growth, and easing accommodation costs.

Inflation Eases Below Forecasts

Data released on September 23 by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) showed core inflation — which excludes private transport and accommodation — easing to 0.3 per cent year-on-year, down from July’s 0.5 per cent. This marked the lowest reading since February 2021. Headline inflation, measured by the Consumer Price Index-All Items (CPI-All Items), also fell to 0.5 per cent, from 0.6 per cent in July.

Travel Services Drive Decline

Economists highlighted that steeper declines in airfares, holiday expenses, and inpatient services accounted for nearly the entire drop in core inflation. Barclays economist Brian Tan noted that travel-related costs alone explained the 0.2 percentage point decline. Services inflation as a whole slowed to 0.4 per cent in August, compared to 0.7 per cent in July.

Other Key Sectors

• Accommodation: Inflation eased to 0.4 per cent, reflecting smaller increases in housing rents.
• Electricity and Gas: Prices dropped 5.7 per cent, deepening July’s 5.6 per cent fall.
• Private Transport: Inflation rose to 2.4 per cent, driven by higher car prices and a smaller decline in petrol costs.
• Food: Inflation stayed steady at 1.1 per cent, with lower non-cooked food inflation offset by higher food services costs.

Economists’ Forecasts And MAS Outlook

Private-sector economists had anticipated inflation to hold at July’s levels. Forecasts for 2025 core inflation now range from 0.5 per cent (Barclays, UOB, Maybank) to 0.6 per cent (OCBC). For headline inflation, projections stand at 0.8–0.9 per cent. MAS and MTI maintained their 2025 forecast range of 0.5 to 1.5 per cent, but flagged risks from both geopolitical shocks and weaker-than-expected global growth.

Monetary Policy Implications

The Maybank team expects MAS to keep its current modest Singapore dollar nominal effective exchange rate (S$NEER) appreciation stance at the October review. However, UOB economist Jester Koh described the decision as a “close call,” suggesting policy easing could come by early 2026. MAS has consistently emphasized that moderate wage growth, productivity gains, and subsidies will keep domestic cost pressures contained.

Broader Implications For The Region

Singapore’s easing inflation provides relief for households but reflects fragile global demand and softer domestic momentum. For Indonesians and regional businesses, Singapore’s contained price pressures mean a stable trade environment, especially as global commodity prices remain weak and the strong Singapore dollar keeps imports cheaper.

The sharp slowdown in Singapore’s inflation highlights a mix of global and domestic factors — from falling travel costs to restrained wage growth. While easing inflation supports consumer purchasing power, it also signals caution over economic momentum ahead. For both Singapore and its regional partners like Indonesia, the data underscores the importance of maintaining resilience in a period of uncertain global trade and growth.

Sources: CNA (2025) , The Business Times (2025)

Keywords: Singapore Inflation, Core Inflation, Consumer Price Index, Monetary Authority Of Singapore, Ministry Of Trade And Industry, Global Economy