Why S’pore’s high inflation may drag into 2023

SINGAPORE – The Monetary Authority of Singapore expects inflation to ease in 2023 while remaining well above the 1.5 per cent it had averaged since 2000.

But it also warned that prices could continue to stay high – or go higher and become more persistent – for the following reasons:

New global commodity price shocks

Fresh shocks to global energy and food supplies arising from the ongoing conflict between Russia and Ukraine – both major producers and exporters of oil and gas, food grains and industrial metals – can reanimate inflationary pressures.

Even without new shocks, the conflict is likely to be prolonged and could continue to push up global energy and commodity prices. This will in turn feed into global consumer price inflation for months to come.

Supply disruptions abroad

The war in Ukraine or a renewed outbreak of Covid-19 variants may require new mobility and travel curbs. Supply chain frictions began to re-emerge in the second half of 2021, even before Russia invaded Ukraine.

Intermittent movement restrictions in various economies can again cause bottlenecks across production chains, for example, by interrupting freight handling at major ports.

China’s economy is still suffering from such restrictions due to its zero-Covid-19 policy that aims at stamping out the virus.

Labour shortages here

A key source of inflationary pressures in most advanced economies, including Singapore, has been labour market tightness.

There has been a marked increase in the demand for labour, against a decline in the participation rate that occurred during the pandemic, and that has not fully recovered.

The shortages have led to increases in wages that have exceeded productivity gains, fuelling price pressures.

In Singapore, while more foreign workers have returned, the non-resident labour force is still 15 per cent less than what it was before the pandemic.

Job vacancies are also at record high levels with broad-based increases across sectors. The ratio of job vacancies to unemployed people grew to 2.42 – or more than two positions available for every unemployed person – in March, the highest level since 1998.

Wages for citizens and permanent residents have risen by an average 6.2 per cent year on year over the past three quarters.