Singapore’s inflation environment in mid-2025 reflects a unique convergence of external headwinds and domestic policy effectiveness. With core inflation at 0.5% and headline inflation at 0.6% as of July 2025, the city-state demonstrates how a small, open economy navigates global trade tensions, currency strength, and weakening demand while maintaining price stability.

Current Inflation Landscape

Key Metrics (July 2025)

Core Inflation: 0.5% year-on-year (excluding private transport and accommodation)
Headline Inflation: 0.6% year-on-year
Trend: Downward trajectory from June’s 0.6% core and 0.8% headline readings

Sectoral Performance

Deflationary Pressures:

Retail and other goods: -0.5% (driven by clothing, footwear, and household appliances)
Electricity and gas: -5.6% (larger decline in electricity prices)
Accommodation costs: +0.5% (slower pace due to moderating rent and maintenance costs)

Inflationary Pressures:

Private transport: +2.1% (steeper rise in car prices)
Food: +1.1% (faster increases in food services and non-cooked food)

Root Causes Analysis

1. External Demand Deterioration

Singapore’s export-oriented economy faces significant headwinds from weaker external demand. The front-loading of orders ahead of higher US tariffs in early 2025 has created a payback effect, with export volumes declining in subsequent months. This deterioration in external demand creates a feedback loop into the domestic economy, given Singapore’s substantial exposure to global trade.

2. Currency-Driven Disinflation

The Singapore dollar’s strength serves as a natural buffer against imported inflation. This appreciation helps offset higher global commodity prices and moderates the cost of imported goods, which is crucial for an economy that imports most of its consumption needs.

3. Competitive Retail Environment

Intense competition in Singapore’s retail sector, combined with softening consumer demand, has forced businesses to absorb cost increases rather than pass them to consumers. This strategic pricing behavior reflects concerns about demand elasticity in a slowing economic environment.

4. Labor Market Moderation

A notable shift has occurred in unit labor costs, which are now expected to moderate rather than rise gradually. This reflects:

Slower nominal wage growth
Continuing improvements in labor productivity
Stabilization of the tight labor market conditions seen in 2023-2024

5. Government Policy Support

Enhanced government subsidies for essential services continue to dampen services inflation, providing a structural brake on price increases in key household expenditure categories.

Strategic Implications

For Businesses

Pricing Strategy Challenges: Companies face difficult trade-offs between maintaining market share and preserving margins. The current environment favors:

Volume preservation over margin expansion
Investment in productivity to offset wage pressures
Strategic cost management rather than price increases

Operational Considerations:

Currency hedging strategies remain critical given SGD strength
Supply chain optimization to capitalize on lower import costs
Careful inventory management given uncertain demand outlook

For Consumers

Purchasing Power Dynamics: Real incomes are being supported by:

Low inflation relative to wage growth
Falling electricity costs reducing utility bills
Government subsidies on essential services

However, consumers should note:

Rising costs in transportation and food categories
Potential for inflation to rise from Q4 2025 as base effects fade
Ongoing uncertainty in the global economic environment

For Policymakers

The Monetary Authority of Singapore (MAS) faces a delicate balancing act:

Current Stance: The decision to keep monetary policy unchanged during the July 2025 meeting reflects prudent caution, preserving policy ammunition for potential future shocks.

Policy Considerations:

The moderate inflation environment provides flexibility to respond to external shocks
Weaker external demand may require eventual policy accommodation
Strong SGD provides natural disinflationary buffer but may hurt export competitiveness

Outlook and Forecasts

Official Forecasts (MAS & MTI)

Core Inflation: 0.5-1.5% for 2025
Headline Inflation: 0.5-1.5% for 2025

Risk Assessment

Upside Risks (Inflationary):

Geopolitical Shocks: Sudden escalation in Middle East tensions or other conflicts could sharply lift energy and shipping costs
Supply Chain Disruptions: Further trade fragmentation or regional conflicts affecting key shipping routes
Currency Reversal: Any significant weakening of the SGD would quickly translate to imported inflation
Wage Pressures: Renewed tightness in labor markets could reignite unit labor cost growth

Downside Risks (Deflationary):

Global Recession: Sharper-than-expected slowdown in major economies (US, China, Europe)
Trade War Intensification: Further tariff escalations depressing global trade volumes
Domestic Demand Collapse: Wealth effects from property or equity market corrections
Competitive Deflation: Race-to-the-bottom pricing in retail and services sectors

Quarterly Outlook

Q3 2025 (Current):

Inflation likely to remain subdued around 0.5-0.7%
External demand headwinds intensifying as higher tariffs take full effect
Retail competition keeping prices compressed

Q4 2025:

Potential uptick in inflation as favorable base effects begin to fade
Holiday season may provide modest support to retail prices
Energy costs could be volatile depending on geopolitical developments

2026 Preview:

Inflation expected to normalize toward 1.5-2.0% range
Assumes stabilization of trade conflicts and modest global growth recovery
Domestic cost pressures may resurface as labor market rebalances

Scenario Analysis

Base Case (60% probability)

Inflation gradually rises to 1.0-1.2% by end-2025
Global growth muddles through at 2.5-3.0%
Trade tensions remain elevated but don’t escalate further
MAS maintains current policy stance through year-end

Pessimistic Case (25% probability)

Inflation falls below 0.5%, potentially approaching zero
Global recession drives sharp demand contraction
Deflationary pressures emerge in goods and services
MAS forced to ease monetary policy in response

Optimistic Case (15% probability)

Inflation rises toward 1.5% as demand recovers faster than expected
Trade tensions de-escalate, boosting export demand
Stronger economic growth supports pricing power
MAS maintains tight policy to prevent overheating

Conclusions and Recommendations

Key Takeaways

Cyclical Bottom Approaching: Singapore appears near the trough of its inflation cycle, with limited room for further disinflation without raising deflation concerns
External Vulnerability Remains High: As a trade-dependent economy, Singapore’s inflation path will be heavily influenced by global developments beyond domestic control
Policy Prudence Warranted: The current low-inflation, high-uncertainty environment justifies MAS’s cautious approach to preserve policy flexibility
Structural Shifts Underway: The moderation in unit labor costs and enhanced competition suggest structural changes in Singapore’s inflation dynamics

Strategic Recommendations

For Investors:

Monitor global trade developments closely as primary driver of Singapore’s economic trajectory
Consider inflation-protected assets may underperform in prolonged low-inflation environment
SGD strength suggests continued preference for domestic assets over foreign exposure

For Businesses:

Maintain pricing discipline but prepare for potential demand recovery in 2026
Invest in productivity improvements during this low-inflation window
Build financial buffers to weather continued uncertainty

For Policymakers:

Consider whether additional fiscal support needed if deflation risks materialize
Monitor for signs of entrenched low inflation expectations
Maintain flexibility to adjust policy stance as external environment evolves

This case study is based on data through August 2025. The inflation outlook remains highly uncertain and subject to significant revision based on geopolitical and economic developments.

Singapore Inflation Management Plan 2026

Introduction

Based on Singapore’s inflation trajectory through 2025, where core inflation has moderated to historic lows of 0.5% amid weakening external demand and strong currency effects, this plan outlines a comprehensive strategy to manage inflation dynamics in 2026. The plan addresses the dual challenge of preventing both deflationary risks in the near term and managing potential reflation as base effects fade and economic conditions normalize.

Situational Assessment

Singapore enters 2026 from a position of exceptionally low inflation, with core inflation at 0.5% and headline inflation at 0.6% as of mid-2025. The primary drivers have been weak external demand stemming from trade conflicts, strong Singapore dollar reducing imported inflation, intense retail competition, and moderating unit labor costs. However, several factors suggest inflation could normalize upward in 2026, including fading base effects, potential stabilization of global trade, and the resumption of domestic cost pressures.

The central challenge is managing this transition without allowing inflation to either remain suppressed at deflationary levels or accelerate beyond the comfort zone of 1.5-2.5%. This requires careful coordination across monetary policy, fiscal policy, regulatory frameworks, and strategic economic positioning.

Strategic Objectives for 2026

The overarching goal is to maintain price stability while supporting sustainable economic growth. This translates to keeping core inflation within the 1.0-2.0% range, preventing deflationary psychology from taking hold, preserving Singapore’s external competitiveness despite currency strength, supporting real income growth for households, and maintaining business confidence to encourage investment and hiring.

Success will be measured by achieving stable inflation within the target band, maintaining positive real GDP growth above 2%, keeping unemployment below 3%, preserving consumer and business confidence indices, and maintaining the Singapore dollar’s role as a stabilizing force without excessive appreciation.

Monetary Policy Framework

The Monetary Authority of Singapore should adopt a calibrated and flexible approach centered on the exchange rate policy band. In early 2026, if inflation remains below 1%, a modest reduction in the slope of the SGD nominal effective exchange rate policy band would be appropriate, shifting from modest appreciation to neutral stance. This would help prevent excessive currency strength from depressing inflation and hurting export competitiveness.

The policy should incorporate trigger-based adjustments with clear thresholds. If core inflation falls below 0.3% for two consecutive months, implement immediate easing by flattening the policy band and potentially re-centering it lower. If inflation exceeds 2.0% for two consecutive months, tighten by steepening the appreciation slope. If external demand deteriorates sharply with export growth below negative 5%, implement countercyclical easing regardless of inflation level.

Communication strategy is critical. MAS should provide forward guidance on policy intentions tied to economic data, explain the rationale for exchange rate adjustments in terms of inflation objectives, and signal willingness to act decisively if conditions warrant. Quarterly monetary policy statements should clearly articulate the balance of risks and the threshold for policy changes.

Policy tools beyond the exchange rate band should also be considered. MAS could adjust reserve requirements for banks if credit growth becomes too sluggish, use targeted lending facilities to support sectors facing financing constraints, and coordinate with government on fiscal measures to complement monetary stance.

Fiscal Policy Measures

The fiscal approach should be countercyclical and targeted, supporting demand where inflation is too low while avoiding broad-based stimulus that could create supply bottlenecks. Three phases of fiscal intervention are recommended.

In the first quarter of 2026, if low inflation persists, implement demand-supporting measures including GST voucher enhancements targeted at lower and middle-income households, acceleration of public infrastructure spending particularly in transportation and housing, subsidies for business investment in productivity-enhancing technology, and enhanced SkillsFuture credits to support workforce upskilling.

By mid-2026, as inflation begins normalizing, transition to selective support focused on cost-of-living assistance for vulnerable groups through utility rebates and public transport vouchers, continued subsidies for essential services including healthcare and education, targeted relief for SMEs facing margin pressures, and support for industries undergoing structural transformation.

In the second half of 2026, if inflation rises toward 2%, implement moderating measures such as gradual phase-out of temporary subsidies, allowing automatic fiscal stabilizers to operate, building fiscal reserves for future contingencies, and shifting focus toward supply-side reforms to enhance productive capacity.

Specific fiscal initiatives should include enhanced utility subsidies. Extend and expand electricity and gas rebates for households to dampen services inflation, with graduated support based on household income and consumption levels. For businesses, provide targeted rebates for energy-intensive manufacturers to maintain competitiveness.

A wage support scheme could help manage labor cost pressures. Provide co-funding for wage increases in sectors with low productivity growth, offer enhanced grants for businesses implementing productivity improvements, and support training programs to help workers transition to higher-value roles.

Infrastructure acceleration in affordable housing construction would help moderate accommodation inflation, while public transport network expansion could contain transportation costs. Digital infrastructure investment would support productivity gains across the economy.

Supply-Side Interventions

Managing inflation requires addressing supply constraints that can cause prices to rise even with weak demand. Four key areas require attention.

Labor market optimization should focus on attracting skilled foreign workers in shortage areas through streamlined work pass processes, supporting workforce participation among older workers and women through flexible work arrangements and childcare support, enhancing productivity through automation grants and technology adoption incentives, and managing wage expectations through tripartite dialogue emphasizing real wage growth over nominal increases.

Competition policy enhancement is critical. Strengthen enforcement against anti-competitive practices particularly in retail and services sectors, review barriers to entry in concentrated industries, encourage new business formation through reduced regulatory burden, and promote price transparency to enhance consumer ability to compare options.

Supply chain resilience requires diversifying import sources for key commodities and manufactured goods, building strategic stockpiles of essential items including food and medical supplies, investing in logistics infrastructure to reduce supply bottlenecks, and strengthening trade relationships with reliable partners beyond traditional markets.

Regulatory efficiency improvements should streamline approval processes for business expansions and new ventures, reduce compliance costs for SMEs through digitalization, harmonize standards with major trading partners, and eliminate unnecessary regulations that add costs without clear benefits.

Sectoral Strategies

Different sectors of the economy require tailored approaches based on their inflation dynamics.

For retail and consumer goods, which showed deflationary pressures in 2025, the strategy should encourage healthy competition while preventing destructive price wars, support omnichannel retail development to improve efficiency, provide business advisory services for pricing strategies in low-inflation environment, and monitor for signs of market exit that could reduce competition and lead to future price spikes.

The food sector, which showed rising inflation, requires working with importers to secure stable supply agreements, supporting local food production where economically viable, enhancing food safety and quality standards to justify price points, and providing consumer education on food price drivers and cost-effective choices.

For housing and accommodation, with moderating inflation, accelerate Build-To-Order flat construction to meet demand, manage foreign demand for private housing through appropriate cooling measures, support rental market transparency through better data and platforms, and ensure housing maintenance costs remain reasonable through contractor licensing and quality standards.

The transport sector, facing higher inflation from car prices, should consider adjusting Certificate of Entitlement quotas to manage vehicle prices, enhance public transport alternatives to reduce private vehicle dependence, support electric vehicle adoption through infrastructure and incentives, and explore road pricing reforms to manage congestion and vehicle usage.

Energy and utilities showed significant deflation and require managing the transition to renewable energy sources without sharp price increases, maintaining transparent pricing formulas linked to input costs, providing long-term price stability through hedging strategies, and investing in energy efficiency programs to reduce overall consumption and costs.

External Economic Engagement

Singapore’s openness to trade means external factors heavily influence domestic inflation. A proactive external strategy is essential.

Trade policy should focus on diversifying export markets to reduce dependence on any single region, strengthening ASEAN economic integration for resilient regional supply chains, pursuing bilateral trade agreements with key partners, and advocating for rules-based multilateral trading system to reduce uncertainty.

Currency management requires maintaining SGD as stable store of value without excessive appreciation, managing reserves actively to smooth currency volatility, coordinating with regional central banks on exchange rate stability, and communicating clearly about currency policy to avoid destabilizing speculation.

Regional cooperation should include coordinating with ASEAN partners on inflation management strategies, sharing best practices on supply chain resilience, collaborating on food and energy security initiatives, and supporting regional financial stability mechanisms.

Investment attraction should target high-value manufacturing and services that enhance productivity, encourage corporate regional headquarters that bring quality jobs, support research and development centers that create innovation spillovers, and attract sustainable finance activities that position Singapore as green finance hub.

Communication and Expectation Management

Inflation expectations can become self-fulfilling, making communication a critical policy tool. A comprehensive communication strategy should encompass several elements.

Public communication should include regular briefings explaining inflation trends in accessible language, transparency about policy objectives and the rationale for interventions, education campaigns on how households and businesses can adapt to inflation environment, and proactive engagement with media to ensure accurate reporting of economic conditions.

Business engagement requires quarterly dialogues with industry associations on cost pressures and pricing environment, guidance on wage-setting to balance competitiveness and cost-of-living concerns, early signaling of policy changes that could affect business planning, and support for business adaptation to changing inflation regime.

Consumer protection should focus on monitoring for price gouging or unjustified price increases, providing platforms for price comparison and informed purchasing, educating consumers about their rights and complaint mechanisms, and swift enforcement action against unfair trading practices.

Academic and analytical community engagement includes commissioning research on Singapore-specific inflation dynamics, supporting data transparency to enable independent analysis, engaging economists in policy dialogue and review, and encouraging public debate on inflation management approaches.

Contingency Planning

Given uncertainty in the global environment, robust contingency plans for different scenarios are essential.

For a deflationary scenario where core inflation falls below zero, the response should include aggressive monetary easing through exchange rate depreciation, large-scale fiscal stimulus including direct household transfers, temporary suspension of GST on essential items, and coordination with major trading partners to support global demand.

In a high inflation scenario where core inflation exceeds 3%, implement monetary tightening through steeper SGD appreciation, fiscal consolidation to reduce aggregate demand, targeted subsidies only for vulnerable groups rather than broad support, and aggressive supply-side measures to address bottlenecks.

For an external shock such as major commodity price spike or trade war escalation, deploy strategic reserves to buffer price increases, accelerate trade diversification initiatives, provide temporary relief to affected sectors and households, and coordinate regional response with ASEAN partners.

In a financial stability crisis that threatens the banking system or property market, MAS should provide liquidity support while maintaining inflation focus, implement macroprudential measures to contain financial risks, coordinate with fiscal authorities on stabilization measures, and communicate clearly to maintain confidence while being transparent about challenges.

Implementation and Governance

Effective implementation requires clear institutional responsibilities and coordination mechanisms. An Inflation Management Task Force should be established, chaired by MAS and including MTI, Ministry of Finance, Ministry of Manpower, and other relevant agencies. This task force would meet monthly to assess inflation trends, quarterly to review policy effectiveness, and ad-hoc during crisis situations.

A comprehensive monitoring and evaluation framework should track key indicators including core and headline inflation monthly, sectoral price indices to identify emerging pressures, business and consumer sentiment surveys, wage growth and productivity data, external demand indicators including exports and trade volumes, currency movements and capital flows, and fiscal stance and public debt sustainability.

Performance reviews should be conducted quarterly to assess progress against targets, semi-annually to evaluate policy effectiveness and adjust approaches, and annually for comprehensive review and planning for subsequent year.

Conclusion

Managing inflation in 2026 requires navigating the transition from the exceptionally low levels of 2025 to a more normalized environment. The challenge is to support this transition while preventing either persistent deflation or excessive inflation. Success depends on policy coordination across monetary, fiscal, and regulatory domains, maintaining Singapore’s external competitiveness while managing imported inflation, addressing both demand and supply factors affecting prices, and maintaining clear communication with all stakeholders.

The plan outlined here provides a framework for achieving these objectives while remaining flexible enough to respond to the inevitable surprises that will emerge. With proactive management, Singapore can maintain its reputation for price stability while supporting sustainable economic growth and rising living standards for its residents.

The key to success lies not in rigid adherence to preset policies, but in maintaining vigilance, responding decisively to emerging challenges, and keeping the ultimate objective of broad-based prosperity at the center of all decision-making.

Singapore Inflation Case Study & Outlook 2025