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Global inflation hasn’t peaked yet, Singapore central bank says

The worst of the global price shocks triggered by the war in Ukraine and Covid-induced supply disruptions probably isn’t over yet.
“Inflation is expected to get worse before it gets better,” Ravi Menon, managing director of the MAS, said. (PHOTO: Bloomberg) (Bloomberg)

By Michelle Jamrisko

(Bloomberg) — The worst of the global price shocks triggered by the war in Ukraine and Covid-induced supply disruptions probably isn’t over yet, with the next risk being inflation getting firmly entrenched in the economy.

That’s the assessment of the Monetary Authority of Singapore in its 2021-22 annual report released Tuesday, which sees inflation easing only next year as major central banks withdraw policy support and supply challenges are addressed. The outlook is subject to considerable uncertainty, it said.

“A key risk is that the current upsurge in inflation could become embedded in price and wage settings, worsening the output sacrifice required to restore price stability,” the MAS said in the report. “Additional strains on supply chains could cause further price shocks, increasing the risk of a de-anchoring of inflation expectations.”


Even as markets assess if the latest US price print marks the worst, which will determine the pace of tightening by the Federal Reserve, the trade-reliant city-state has had to deal with its own share of inflation woes this year. Tangled supply chains, shortages stemming from the war, and export restrictions elsewhere are driving up costs for Singaporeans, with inflation data yet to show the peak that would give officials some breathing room.

“Inflation is expected to get worse before it gets better,” Ravi Menon, managing director of the MAS, said at a briefing following the release of the annual report. “A slowdown in economic growth is necessary” to restore global stability.

The MAS, which uses the currency as its main policy tool rather than interest rates, has tightened policy three times this year, including a second unscheduled tightening last week. A softening in the local dollar may have prompted the latest off-cycle move, with policy makers worldwide facing similar pressures — the Philippines hiked interest rates in a surprise decision on the same day.

The core price gauge closely tracked by MAS, which excludes private transport and accommodation, advanced 3.6% in May for its fastest pace in almost 14 years. June data are set for release next week.

The MAS, which sees its policy building on previous tightening to slow inflation, retained its price-growth forecasts that was revised upwards only last week, with the core gauge seen gaining 3%-4% this year, and the all-items measure seen at 5%-6%.

The central bank also has had to eye a fragile economic growth recovery to avoid stagflation and recessionary risks. Second-quarter gross domestic product posted zero growth from the prior three months, the Ministry of Trade and Industry advance estimates showed last week, missing the 1% expansion forecast in a Bloomberg survey. GDP rose 4.8% from the same period in 2021 versus the 5.4% survey median.

Policy makers also retained their expectation for Singapore’s economy to grow in the lower end of a 3%-5% range this year after expanding 7.6% in 2021. The official forecast for full-year growth is due to be revised next month.

Other highlights from the briefing:

  • Central banks are expected to further tighten monetary policy substantially over the next six months, Menon said

  • The European Central Bank has yet to raise rates but has indicated it will do so this month, he said

  • Pathway to achieve soft landing is “quite narrow,” Menon said

  • Tighter financial conditions, coupled with a squeeze in real incomes as a result of rising prices, will exert a drag on growth: Menon

  • Menon said MAS supervisors have stepped up engagement with banks on their asset quality, including the adequacy of provisioning against possible asset quality deterioration

  • Singapore needs to “make sure the inflow of non-resident workers is unimpeded” — still 15% below pre-pandemic level in terms of foreign labor market stock: Menon

©2022 Bloomberg L.P.