RHB Group Research (RHB) analysts Barnabas Gan and Laalitha Raveenthar are keeping their full-year inflation outlook unchanged despite easing inflationary pressures in Singapore.

Gan and Raveenthar are maintaining their 2025 headline and core inflation forecasts at 1.6% and 1.1%, respectively, noting that Singapore’s year-to-date headline and core consumer price index (CPI) are up by merely 0.92% and 0.63%, respectively.

“At this juncture, we assess inflation risks to be broadly balanced as both external and domestic factors continue to shape the nation's inflation trajectory,” the pair write in their report dated June 23.

Although their inflation forecast is higher than the official projection range of 0.5% to 1.5% in 2025, Gan and Raveenthar see that escalating tensions in the Middle East and a potential spike in oil prices could drive higher global inflation, thereby posing upside risks to Singapore’s overall inflationary pressures.

The global oil benchmark Brent traded at US$76.75 ($98.38) per barrel on June 23, up 1.68%, after surging 5.7% to US$81.40 earlier that morning.

On this, Gan and Raveenthar write: “In a worst-case scenario involving a closure of the Strait of Hormuz, markets estimate Brent crude could surge to US$90 per barrel and this would qualify as an oil price shock.”

Due to US involvement in the Iran-Israel conflict including strikes on Iranian territory, oil prices rose over the weekend, extending a three-week rally.

The analysts thus see that imported goods and services may become more expensive if global supply chains are disrupted or rerouted due to regional conflict.

Meanwhile, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) have noted that while rising energy costs and trade tensions could fuel inflation in some economies, their impact on Singapore’s import prices is likely to be offset by disinflationary pressures stemming from weaker global demand.

Singapore’s imported inflation is therefore expected to remain moderate, despite the recent uptick in global crude oil prices, which currently remain near 2024 averages.

Change factors

Overall, Gan and Raveenethar forecast inflation to remain manageable this year, underpinned by the absence of strong demand-pull pressures and the possibility of an economic slowdown in the second half of the year.

A more cautious economic sentiment and easing global interest rates, they note, are likely to weigh on business activity and private consumption, which will help contain price pressures and contribute to a more subdued inflationary environment.

With a border deceleration in gross domestic product (GDP) growth across the ASEAN region, the analysts add that retail and tourism-related demand could weaken.

Meanwhile, although Singapore displayed a stronger-than-expected performance in the 1Q2025, Gan and Raveenthat note that a technical recession will likely arrive in the 1H2025, with negative economic growth expected to continue in the 2Q2025.

On the Singapore dollar nominal effective exchange rate ($SNEER), they note that a stronger rate could limit import prices resulting in a moderate imported inflation in Singapore.

They explain: “According to our updated model, the S$NEER has strengthened notably, now trading at 2.0% above the midpoint, up from 0.2% in late 2024.”

Year-to-date (ytd), the Singapore dollar has continued to outperform regional currencies, gaining 5.44% against a trade-weighted basket, ahead of the Malaysian ringgit’s (MYR) 4.07%, the Philippine Peso’s (PHP) 4.00% and the Thai baht’s (THB) 3.12%.

If this strength continues, Gan and Raveenthar note, it should help to keep imported inflation well contained over the remainder of the year.

“As noted earlier, we do not discount the fact that while the strong Singapore dollar helps buffer imported inflation, sustained or extreme energy price shocks could overwhelm this offset, especially if oil breaches key thresholds, exerting upward pressure on overall inflation,” write the pair.

Fluctuations in the global commodity prices meanwhile, continue to pose risks to the inflation trajectory in Singapore for the year ahead.

Presently, inflation across regional Asean economies remains moderate, although this does not yet reflect the potential impact of escalating Middle East conflicts and the recent surge in oil prices.

Although the pause in US-China tariffs may offer temporary relief, Gan and Raveenthar see that a broader global economic slowdown is expected to dampen demand, which will exert downward pressure on both commodity and import prices.

While global crude oil prices remain close to the 2024 average despite rising in recent weeks, should the ongoing Middle-East tensions de-escalate coming into the second half of the year, the analysts anticipate downside risk on their full-year headline inflation outlook towards 1.3%, compared to the current in-house projection.

With this, given the lingering uncertainties in the global outlook, they expect the MAS to maintain its current policy stance in the July monetary policy committee (MPC) meeting.

Rising volatility, they note, could prompt the MAS to widen the policy band to ±3.0% from ±2.0%, while maintaining the 0.5% appreciation slope in 2H2025.

However, if trade tensions escalate again or if global demand slows more sharply than anticipated, Gan and Raveenthar do not rule out the possibility of the MAS flattening the slope in a subsequent review.

“We recognise several macro risks including a potential re-escalation of US-China tariffs, sharper-than-expected declines in global growth and rising geopolitical tensions which could weigh heavily on Singapore's exportreliant sectors,” write the pair.

Aside from closely monitoring economic developments ahead of its July policy meeting, the analysts expect the MAS to have a renewed focus on the growth-inflation trade-off.

Overall, while headline and core inflation remain contained, Gan and Raveenthar understand that the balance of risk has tilted towards the need to support growth, given rising external uncertainties.

Singapore’s headline CPI eased to 0.8% y-o-y, in-line with Bloomberg consensus and RHB’s projections, while core CPI ticked down to 0.6% y-o-y, slowing down from the 0.7% y-o-y rise in April.

The analysts write that this marks the lowest reading since February 2021, as prices ticked lower for food and transport.

Most price categories in May saw either further declines or remained unchanged.

Electricity and gas inflation declined by 3.7% y-o-y, driven by a sharper fall in electricity prices, while prices for retail and other goods continued to ease, albeit at a slower pace of l..0% y-o-y.

Meanwhile, services and accommodation inflation were unchanged at 1.1% y-o-y, respectively.

On a seasonally adjusted m-o-m basis, CPI rose by 0.7%, rebounding from a 0.3% decline in the previous month.