Price Stability

The Global Economy

•  Global economic activity has remained broadly resilient through the Middle East conflict, as supply-side adjustments and demand-side measures helped stabilise energy markets and avert more severe disruptions. The drag on growth has consequently been more limited than initially feared, with the continued strength of the global tech cycle providing an important tailwind for some economies. However, higher energy costs have lifted headline inflation and induced upstream cost pressures along supply chains.
• Global inflation is expected to rise further and peak in late 2026 as elevated input costs cascade to a wider range of goods and services. Energy prices are likely to remain above pre-conflict levels reflecting continued concerns over the durability of the ceasefire. Sustained strength in global chip demand as well as the spectre of El Niño could also add to inflationary pressures.
• Growth across Singapore’s key trading partners is broadly expected to moderate in 2026 from the strong pace last year amid the energy shock and lingering trade policy uncertainty. Nevertheless, economies deeply embedded in the AI capex supply chain will benefit from the tech boom.
• Overall, global macroeconomic conditions are generally resilient but the balance of risks is tilted towards higher inflation. A renewed escalation of tensions in the Middle East could amplify inflationary impulses through further energy supply disruptions. Inflation momentum could also strengthen should growth turn out stronger-than-expected. Within the AI sector, there remains a risk of correction in the global tech cycle that could more broadly weigh on growth through a sharp tightening in financial conditions. That said, given the continued strength of AI-related earnings guidance and the long investment horizons of major hyperscalers, strong growth conditions in the sector could be sustained before fundamentals are fully tested.
  

The Singapore Economy

• The Singapore economy has been confronted by two opposing global forces. While the conflict in the Middle East has weighed on the oil-related sectors since March 2026, these headwinds were more than offset by strong AI-driven demand, which continued to underpin growth in the technology-related sectors.
• Looking ahead, the fluidity in the Middle East situation will continue to pose some uncertainty to Singapore’s growth outlook. However, global demand for AI-related technologies remains strong and should continue to support near-term growth.
• Overall, the Singapore economy should continue to grow at a firm pace for the rest of 2026, with the positive output gap forecast to widen slightly from last year.
  
  

Inflation

• Singapore’s inflation has picked up since the outbreak of the conflict in the Middle East. Higher chemical and energy prices have lifted domestic production and transportation costs, which are beginning to pass through to consumer prices, such as for food and transport services.
• Global inflationary pressures are expected to persist in the quarters ahead and pass through global value chains to a wider range of Singapore’s import costs. Although crude oil prices have eased from their April peak, they remain volatile and well above levels last year. Rising electronics input prices and adverse El Niño effects will also sustain cost pressures across intermediate and final goods imports as well as food.
• Domestic price pressures remain modest. Services inflation should be contained, as unit labour cost growth in the sector is expected to remain subdued amid firm productivity growth and easing wage pressures. Nonetheless, the positive output gap and still-healthy household balance sheets should facilitate some pass-through of higher import costs to consumer prices.
• Reflecting these factors, MAS Core Inflation is forecast to average 1.5–2.5% in 2026, up from 0.7% in 2025. Core inflation is expected to step up further in July and stay elevated into 2027. Inflation should then ease more discernibly in the latter half of next year as global energy prices gradually decline.
• The risks to inflation remain tilted to the upside. Renewed surges in energy prices could occur amid thinner global oil reserves. Demand-pull inflationary impulses could also emerge if aggregate demand pick up more strongly than anticipated.
   

Monetary Policy

• After easing monetary policy in January and April 2025, MAS kept the S$NEER policy band on its prevailing rate of appreciation between July 2025 to January 2026.
• In April 2026, MAS increased slightly the slope of the S$NEER policy band. MAS followed the April move with a further very slight increase in July.
• The policy tightening in April 2026, which followed a period of broad S$NEER appreciation in recent quarters, has contributed to a dampening of inflationary pressures in the economy. However, external price increases are expected to persist and lift inflation. MAS Core Inflation is projected to step up from July and remain elevated but should moderate discernibly from around mid-2027.
• Against this backdrop, MAS assessed that this calibrated tightening in the S$NEER policy stance was appropriate for ensuring medium-term price stability.
• Both upside and downside risks to growth and inflation are present, amid significant uncertainty in the external environment.