Singapore’s labour market remained tight in 2013, with the overall unemployment rate falling to 1.9%, a 16-year low. This reflected strong labour demand from the domestic-oriented sectors alongside further foreign worker tightening measures. Consequently, resident wage growth rose from 2.3% in 2012 to 4.3% in 2013, which, together with flat labour productivity, resulted in a build-up in business cost last year.

While the pass-through of domestic cost to consumer prices was muted in H1 2013, it picked up in H2. As a result, MAS Core Inflation, which excludes the cost of accommodation and private road transport, edged up in the latter part of the year. For the whole of 2013, MAS Core Inflation was 1.7% compared to 2.5% in 2012. Meanwhile, CPI-All Items inflation came in at 2.4% in 2013, lower than the 4.6% in the preceding year, due to softer housing rentals and a correction in Certificate of Entitlement premiums following the introduction of motor vehicle loan restrictions in February 2013.

As the economy transits towards more sustainable, productivity-driven growth, the labour market will remain tight. Wage pressures will persist and firms are likely to continue passing on higher business cost to consumer prices. In comparison, price pressures from most of Singapore’s key import source countries should remain subdued. The impact from global commodity prices should also be relatively contained, given the supply buffers in most markets. Nonetheless, there are risks from higher oil prices if geopolitical tensions in the Middle East escalate significantly. Taking these factors into account, MAS Core Inflation is expected to stay elevated at 2–3% in 2014. CPI-All Items inflation would be lower, with modest contributions from car prices and imputed rentals on owner-occupied accommodation.