Singapore delivers a surprise lesson on inflation

Singapore isn't a place for monetary policy surprises. The central bank's strike against inflation — only the third unscheduled move in two decades — sends a clear signal that expectations of higher prices for longer have gone mainstream. 

The Monetary Authority of Singapore slightly raised the rate of appreciation of its main currency band, meaning it will let the local dollar strengthen against peers to mitigate inflation. (The trade-dependent city-state relies on currency shifts to steer policy.) The MAS also raised its forecasts for consumer prices and warned of supply-chain constraints, while sounding fairly upbeat on the global economy.

The central bank's commentary echoed that of its peers, talking up the risks of elevated inflation and playing down the dangers that omicron poses to world growth. The message wasn't particularly jarring. After all, Singapore has long been a bellwether of commercial trends. What stands out is the timing, with the Federal Reserve widely expected to signal an interest-rate hike in March when its meeting  concludes Wednesday. The MAS wasn't scheduled to review its stance until April, which looks a long way off. Its alacrity is a testament to a rapidly evolving global outlook. 

The MAS last moved the dial in October, and changes between meetings are rare — this is the first since 2015. But the world has shifted significantly in the past three months. Few people dare describe inflation as "transitory" anymore. Similar terms like temporary and short-lived have fallen from favor. In this sort of environment, waiting until April would be fraught. So if you are going to go early, go soon and get the benefit of preemption.

Most central banks will say they act independently of the Fed; in practice few buck the direction of travel in Washington. Bank Indonesia, which last week raised reserve requirements for lenders, may hike its main rate hours after the Federal Open Market Committee's March 15-16 conclave. The Reserve Bank of Australia, dealing with its own snapback in inflation, is expected to curtail quantitative easing next week. The recalibration of central-bank projections is rippling through global markets.

Singapore's emphasis on inflation also reflects domestic realities. On Monday, a government report showed consumer prices hit an eight-year high. Vendors complain especially about food and energy costs, while household power bills have sky-rocketed in recent months for many residents. Much of the front page of the Straits Times, the main newspaper in the country, was devoted to inflation Tuesday. 

"To keep up with rising costs, I have no choice but to raise prices," one stall owner, Leong Chee Bong, told the Straits Times on Jan. 9.  "I'm not trying to rip my customers off, I'm just trying to survive."

So worries about inflation are in. Threats posed by Covid are, if not quite out, then receding — certainly relative to the conditions that prevailed in 2020 and 2021, when Singapore felt like it was stuck in a rinse-repeat cycle of openings and closures. The rest of the world has moved on. The MAS statement suggests Singapore is finally trying to as well. "Global economic prospects remain largely intact," the authority said. "The Omicron variant that emerged in late 2021 may temporarily dampen specific clusters of activity, but is unlikely to derail the broader ongoing economic recovery. Accordingly, global GDP is still forecast to expand at an above-trend pace for a second consecutive year in 2022, even as uncertainties remain."

Singapore's leaders talk more and more about living with Covid. To its credit, the government has resisted fresh closures the past few months even as ministers warn of an omicron-led wave. This reopening might just be for real. The MAS surprise is one more clue.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

Disclaimer: This article first appeared on Bloomberg and is published by special syndication arrangement.