Singapore's Core Inflation Drops to 0.6% in May 2025

Singapore’s core inflation eased to 0.6% year-on-year in May 2025, a marginal decline from 0.7% in April, primarily due to moderating food prices. This development, coupled with overall inflation dropping to 0.8% from 0.9%, underscores a stable price environment that bolsters consumer confidence and economic resilience in the city-state. With the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) forecasting core and overall inflation to remain between 0.5% and 1.5% for 2025, the financial markets are poised for opportunities, particularly in equities and real estate. This low-inflation backdrop, supported by government subsidies and a flexible monetary policy, presents a compelling case for investors to capitalize on Singapore’s economic stability amidst global uncertainties.

The decline in core inflation, which strips out volatile components such as accommodation and private transport, reflects a cooling of underlying price pressures in Singapore’s economy. Food inflation, a significant driver, fell from 1.4% in April to 1.1% in May, as non-cooked food prices moderated. This easing is particularly impactful given food’s substantial share in household budgets, freeing up disposable income for discretionary spending. On a month-on-month basis, core inflation was flat at 0.0%, indicating a stabilization of price levels that supports consumer purchasing power and business cost management.

The MAS has adopted a more accommodative monetary policy in 2025, allowing a gradual appreciation of the Singapore dollar’s nominal effective exchange rate (NEER). This policy, the second easing this year, aims to enhance the competitiveness of Singapore’s exports, which are critical to its trade-driven economy. The low inflation figures reinforce the MAS’s decision to avoid tightening measures, as imported inflation is expected to remain moderate. Global food commodity prices are projected to stay contained, and while crude oil prices have risen recently, they remain close to their 2024 average, mitigating import cost pressures.

The easing inflation environment is a boon for Singapore’s equity markets, particularly the Straits Times Index (STI), which was trading at approximately 3,883.43 SGD as of June 20, 2025, up 2.37% year-to-date. Lower inflation enhances consumer spending power, driving demand for consumer staples and discretionary goods. Companies like Dairy Farm International, a leading retailer, and Jardine Cycle & Carriage, with exposure to automotive and consumer markets, are well-positioned to benefit from increased household expenditure. The MAS’s accommodative policy also supports export-oriented firms, such as those in manufacturing and logistics, which constitute a significant portion of the STI.

Singapore’s real estate market is another beneficiary of the low-inflation environment. Stable inflation and interest rates enhance affordability for homebuyers and investors, supporting demand for residential and commercial properties. Real estate investment trusts (REITs), such as CapitaLand Integrated Commercial Trust and Mapletree Commercial Trust, offer attractive yields in a low-yield environment, appealing to income-focused investors. The steady accommodation inflation rate of 1.1%, driven by balanced housing rent and maintenance cost dynamics, ensures that real estate remains accessible without significant price pressures.

In the bond market, Singapore’s low inflation is likely to increase demand for government securities, potentially lowering yields. Singapore government bonds, known for their safety, appeal to investors seeking stability amidst global uncertainties. The 10-year Singapore government bond yield, hovering around 2.8% in mid-2025, reflects a cautious but optimistic outlook. However, if global inflation accelerates, particularly in the U.S., where inflation reached 2.4% in May 2025, yields could face upward pressure as investors demand higher returns to offset price risks.

Singapore’s inflation trajectory diverges from global trends, where many economies face higher price pressures. The U.S., for instance, grapples with 2.4% inflation, driven by tariff-related costs, while regional peers like Malaysia and Indonesia contend with domestic demand-driven inflation. Singapore’s open economy benefits from weaker global demand, which offsets inflationary pressures from trade conflicts. Its efficient supply chains and strategic trade agreements further shield it from global price shocks, unlike import-dependent economies.

Singapore’s low inflation outlook for 2025, projected at 0.5% to 1.5%, sets a favorable stage for financial markets. The STI is likely to sustain its upward momentum, driven by consumer-driven and export-oriented sectors. Real estate, particularly REITs, offers stable returns, supported by affordability and foreign investment. Bonds remain a safe haven, though yields may face pressure if global inflation rises. Commodities require cautious navigation due to global demand uncertainties, while cryptocurrencies are a speculative play with limited mainstream appeal.