Singapore inflation outlook for 2026 to be reassessed as energy prices soar from Iran war

SINGAPORE – Singapore’s central bank will update its inflation outlook in its April monetary policy statement as it assesses recent developments amid the Middle East conflict, which has sent energy prices soaring.

The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said: “Global energy prices have risen significantly in recent weeks due to the ongoing conflict in the Middle East.

“Singapore’s import cost pressures are likely to pick up in the near term.”

MAS currently forecasts core inflation and overall inflation to average 1 per cent to 2 per cent in 2026.

MAS and MTI’s statement came in their latest monthly joint report on Singapore’s consumer price index, released on March 23.

Economists said they expect MAS to tighten its monetary policy in April should global energy prices remain elevated. This would allow the Singapore dollar to strengthen faster against a basket of currencies, making imports cheaper but exports more expensive.

The Singapore currency is already the best performer in Asia so far in 2026 after the Malaysian ringgit and Chinese renminbi, Bloomberg reported.

Before the Iran war, OCBC Bank’s view was that MAS would tighten its Singdollar policy in the second half of 2026. But rising inflation concerns mean MAS might do so sooner rather than later, especially if energy prices stay high for a long time and push up core inflation, said the bank’s chief economist Selena Ling.

“Singapore, as a small open economy, is usually the canary in the coal mine when it comes to brewing global headwinds,” she said. “If crude oil prices stay elevated at around US$100 in the second quarter of 2026 before normalising for the rest of this year, it is likely to drive headline and core inflation up from the February readings since the disruption extends beyond just global energy prices.”

Agreeing, DBS Bank senior economist Chua Han Teng said: “Inflation risks for 2026 are clearly skewed to the upside the longer the conflict persists, which could result in an earlier policy tightening bias.”

Maybank economists Chua Hak Bin and Brian Lee also expect MAS to tighten its Singdollar policy to cool rising import cost pressures.

Maybank raised its inflation forecasts for 2026 on March 17, after the Iran war began. It now tips core inflation at 1.9 per cent, from 1.7 per cent previously, and headline inflation at 1.8 per cent, from 1.6 per cent.

“The transmission of the war shock to prices is currently at a nascent stage. Even so, petrol and diesel prices, airfares, taxi fares and even the cost of fixed-price residential electricity plan renewals have climbed significantly,” Dr Chua and Mr Lee said.

“The February inflation print does not yet reflect the impact from the Iran war,” they noted.

Nor has the second-round impact materialised.

“As businesses are squeezed by higher transport, freight, delivery and electricity costs, firms in the non-transport and utilities sectors will eventually pass on higher input costs to consumers if oil and gas prices stay elevated,” said Dr Chua and Mr Lee.

Even before the outbreak of the Iran war, core inflation rose to 1.4 per cent year on year in February, from 1 per cent in January. This is the highest since December 2024. The increase was partly due to the timing of Chinese New Year, which occurred in February in 2026, as opposed to January in 2025. Still, the rise was more than the 1.3 per cent forecast by analysts in a Bloomberg poll.

Core inflation excludes private transport and accommodation costs to better represent household expenses.

However, overall – or headline – inflation in February fell to 1.2 per cent, from 1.4 per cent in January, as lower accommodation and private transport inflation more than offset higher services, food, and retail and other goods inflation.

Electricity and gas prices fell more sharply – by 4.3 per cent, compared with 4.2 per cent in January – due to a steeper decline in electricity tariffs in February.

Food inflation rose to 1.6 per cent, from 1.2 per cent in January, as prices of non-cooked food and food services rose at a quicker pace.

Retail and other goods inflation rose to 0.6 per cent, from 0.5 per cent in January, mainly due to a larger increase in the cost of medicine and health products, as well as higher prices for furniture and furnishings.

Services inflation rose to 2 per cent, from 1.5 per cent in January, led by an increase in airfares and the cost of holiday expenses.

Accommodation inflation fell to 0.3 per cent, from 1.9 per cent in January, owing to a smaller increase in the cost of housing maintenance and repairs.

Private transport inflation eased to 2.4 per cent from 2.7 per cent in January, owing to a larger decline in petrol prices.

On domestic price pressures, MAS and MTI said unit labour cost growth is likely to edge higher in 2026, although the extent of the pickup will be dampened by sustained productivity growth. Meanwhile, private consumption demand should remain steady amid continued real wage increases.

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