The Great Singapore Disinflation: Why MAS Will Stand Firm as a Global Storm Abates

Singapore’s core inflation fell to 0.7% in 2025. With price pressures receding, the MAS is expected to hold policy steady in January 2026, marking a new phase for the city-state’s economy.

The late afternoon sun slants through the canopy of the Tiong Bahru Market hawker centre, glinting off stainless steel steamers and the well-worn handles of kopi cups. Here, at the heart of Singapore’s quotidien life, the most consequential economic conversation of the year is being had, not in the jargon of central bankers, but in the simple calculus of daily purchases. An auntie considers the price of char siew before ordering; a taxi driver compares the cost of his teh tarik to last year’s. For the first time in nearly half a decade, that mental math is bringing a faint, collective sigh of relief. The fever of inflation—which spiked to a 14-year high in 2023—has broken. The Monetary Authority of Singapore (MAS), the nation’s powerful central bank, now faces a delicate new reality: not of battling runaway prices, but of navigating a return to profound price stability in a world still rife with uncertainty.

On January 29, 2026, the MAS will release its first semi-annual monetary policy statement of the year. All signs, confirmed by the latest data from the Singapore Department of Statistics (SingStat), point to a unanimous decision: the central bank will keep its exchange rate-centered policy settings unchanged. The full-year data for 2025 is now in, and it tells a story of remarkable disinflation. Core Inflation—the MAS’s preferred gauge, which excludes private transport and accommodation costs—came in at 0.7% for 2025, a dramatic decline from 2.8% in 2024 and 4.2% in 2023.

Headline inflation for the year was 0.9%. December’s figures showed both core and headline inflation holding steady at 1.2% year-on-year, indicating a stable plateau as the economy adjusts to a post-shock norm. This outcome, while slightly above the government’s earlier 2025 forecast of 0.5%, underscores a victory in the battle against imported global inflation. Economists widely anticipate that alongside its stand-pat decision, the MAS and the Ministry of Trade and Industry (MTI) will revise the official 2026 inflation forecast range upward, from the current 0.5–1.5% to a likely 1–2%. This adjustment would not signal a new tightening impulse, but rather a recognition of stabilizing domestic price pressures and base effects, framing a modestly more hawkish guardrail for the year ahead.

The Data Unpacked: A Return to Pre-Pandemic Normality

To appreciate the significance of the 0.7% core inflation print, one must view it through the corrective lens of recent history. Singapore, as a miniscule, trade-reliant economy, is a hyper-sensitive barometer of global price pressures. The supply-chain cataclysm of 2021-2022 and the energy shock following Russia’s invasion of Ukraine were transmitted directly into its domestic cost structure, amplified by robust post-pandemic domestic demand.

Table: Singapore Core Inflation (CPI-All Items ex. OOA & Private Road Transport)

Year	Core Inflation Rate (%)	Key Driver
2022	4.1	Broad-based imported & domestic cost pressures
2023	4.2	Peak passthrough, tight labour market
2024	2.8	MAS tightening, global disinflation begins
2025	0.7	Sustained MAS policy, falling import costs
2026F	1.0 – 2.0	Stabilising domestic wages, moderated global decline

The journey down from the peak has been methodical, reflecting the calibrated tightening by the MAS. Since October 2021, the authority had undertaken five consecutive rounds of tightening, primarily by adjusting the slope, mid-point, and width of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band. This unique framework, which uses the exchange rate as its primary tool, effectively imported disinflation by strengthening the Singapore dollar, making imports cheaper in local currency terms. The decision to pause this tightening cycle in July 2024 was the first signal that the worst was over.

The 2025 disinflation was broad-based. Key contributors included:

• Food Inflation: Eased significantly from 3.8% in 2024 to an average of 1.8% in 2025, as global supply chains normalized and commodity prices softened.
• Retail & Other Goods: Inflation turned negative in several quarters, reflecting lower imported goods prices and weaker discretionary spending.
• Services Inflation: Moderated but remained stickier, a testament to persistent domestic wage pressures in a tight labour market. However, even here, the pace decelerated markedly by year-end.

The slight overshoot of the 0.7% outcome relative to the official 0.5% forecast is statistically marginal but analytically noteworthy. It likely reflects the residual stickiness in domestic services costs and perhaps a firmer-than-anticipated trajectory for accommodation costs, which are excluded from the core measure but feed into overall economic sentiment.

The MAS Mandate in a New Phase: Vigilance Over Volatility

The MAS operates under a singular mandate: to ensure price stability conducive to sustainable economic growth. Unlike most central banks, it does not set an interest rate but manages the S$NEER. The current expectation of an unchanged policy stance is a statement of confidence that the existing level of the currency’s strength is sufficient to keep imported disinflation flowing while guarding against any premature loosening of financial conditions.

“The current rate of appreciation of the S$NEER policy band is sufficient to ensure medium-term price stability,” the MAS stated in its October 2025 review. The latest inflation data validates this assessment. Holding the policy band steady now achieves two objectives:

1. It Anchors Expectations: It signals to businesses and unions that the central bank sees no need for further tightening, but is equally not prepared to risk its hard-won credibility by easing policy while core inflation, though low, is expected to rise modestly through 2026.
2. It Provides a Buffer: A stable, moderately strong Singapore dollar acts as a shock absorber against potential renewed volatility in global energy and food prices, which remain susceptible to geopolitical flare-ups.

The anticipated upward revision of the 2026 forecast range to 1–2% is the key nuance in this meeting. This is not a hawkish pivot, but a realistic recalibration. It acknowledges several forward-looking dynamics:

• Base Effects: The very low inflation in late 2024 and early 2025 will create less favourable base effects for year-on-year comparisons in late 2026.
• Domestic Cost Pressures: Wage growth, while moderating, is expected to remain above pre-pandemic trends, supported by structural tightness in the local labour market and ongoing initiatives like the Progressive Wage Model.
• Policy-Driven Price Increases: The scheduled 1%-point GST increase to 10% in January 2026 will impart a one-time upward push to price levels, which the MAS will look through but must account for in its communications.

The Global and Comparative Lens: Singapore as a Bellwether

Singapore’s disinflation narrative is not occurring in a vacuum. It mirrors, and in some respects leads, trends in other small, advanced, open economies. A comparative view is instructive:

• Switzerland: Like Singapore, Switzerland has seen inflation return to target rapidly, aided by a strong currency (the Swiss Franc) and direct government interventions on energy prices. The Swiss National Bank has already shifted to a neutral stance, with discussions of easing emerging.
• Hong Kong: Linked to the US dollar via its currency peg, Hong Kong has had its monetary policy dictated by the Federal Reserve. Its disinflation path has been bumpier, complicated by its unique economic integration with mainland China and a slower post-pandemic recovery in domestic demand.
• New Zealand: The Reserve Bank of New Zealand has maintained a more hawkish stance, with inflation proving stickier due to a less open consumption basket and intense domestic capacity constraints. New Zealand’s cash rate remains restrictive.

Singapore’s experience stands out for the precision of its policy tool. The S$NEER framework allowed it to respond directly to the imported nature of the inflation shock. As Bloomberg Economics noted in a January 2026 analysis, “The MAS’s exchange-rate centered policy has acted as a targeted filter for global inflation, proving highly effective in the post-pandemic cycle.” This successful navigation has bolstered the authority’s international credibility and the Singapore dollar’s status as a regional safe-haven asset.

The Looming Risks: Why Complacency is Not an Option

The path to a sustained 2% inflation environment is not without its pitfalls. The MAS’s steady hand in January belies a watchful eye on several risk clouds:

• Geopolitical Supply Shocks: Any major escalation in the Middle East or renewed disruption in key trade lanes like the Straits of Malacca could trigger a sudden spike in global energy and freight costs. Singapore’s strategic petroleum reserves and diversified supply chains provide a buffer, but the inflationary impact would be swift.
• Wage-Price Spiral Precautions: The slope of Singapore’s Phillips Curve—the historical relationship between unemployment and inflation—has flattened but remains a concern. Robust wage settlements in 2026, if they significantly outstrip productivity growth, could embed inflation in the services sector, which is less sensitive to exchange rate policy.
• Global Monetary Policy Divergence: The timing and pace of interest rate cuts by the US Federal Reserve and the European Central Bank will cause significant currency and capital flow volatility. The MAS must ensure the S$NEER moves in an orderly fashion amidst this global repricing of risk.
• Climate Transition Costs: The green energy transition, while deflationary in the long term, may impose episodic cost pressures through carbon taxes, regulatory costs, and investments in new infrastructure. Singapore’s carbon tax is scheduled to rise significantly in the coming years.

As the Financial Times reported following the release of the 2025 data, analysts caution that “the last mile of disinflation—stabilising at the 2% sweet spot—is often the most treacherous.” The MAS is acutely aware that premature declarations of victory could unanchor inflation expectations.

Conclusion: The Steady Centre in a Churning World

As the hawker centre stalls begin to shutter for the evening, the economic reality they embody is one of cautious normalization. The MAS’s expected decision to hold policy unchanged is a powerful signal of this new phase. It is the policy equivalent of a skilled sailor easing the sails after successfully navigating a storm: the vessel is steady, the immediate danger has passed, but the horizon is still watched for the next shift in the wind.

The recalibration of the 2026 forecast to a 1–2% range is a masterclass in central bank communication—acknowledging progress while managing expectations upward from unsustainably low levels. It leaves the MAS with maximum optionality: it can maintain its stance through much of 2026 if inflation drifts toward the upper end of the band, but it is not locked into any pre-committed path.

For Singaporeans, the profound disinflation of 2025 offers tangible respite. For global investors and policymakers, Singapore’s trajectory serves as a compelling case study in the effective use of an unconventional monetary framework in a crisis. The nation has emerged from the global inflationary maelstrom not just with stable prices, but with reinforced confidence in the institutions that guard its economic stability. The challenge ahead is one of preservation, not conquest. And in that endeavour, a steady hand on the tiller is the most valuable tool of all.