Over the past five decades, Singapore has enjoyed relatively low inflation, with the CPI All-Items Inflation averaging 2.7 percent per year between 1965 and 2016. 

A closer look at Singapore’s history will reveal quite a wide variation in the levels of headline inflation over different time periods. Its inflation experience can be broadly divided into six phases:

1. 1971-1980: The tumultuous seventies

   Singapore experienced high and volatile inflation during the seventies, driven by the Oil Crisis of 1973. In October of that year, global oil prices quadrupled after the Organisation of the Petroleum Exporting Countries (OPEC) cartel imposed an embargo against the United States. Higher oil prices led to cost-push inflation, driving Singapore’s headline inflation to as high as 30 percent in the first half of 1974 compared to a year ago. These price shocks were the first major test for MAS, which had been established in 1971. To dampen high imported inflation and surging domestic liquidity, MAS implemented various monetary tightening measures such as hiking interest rates by 2 percentage points in October 1974.

2. 1981-1987: MAS adopted a new exchange rate-centred policy framework

   In 1981, MAS formalised a new monetary policy that focused on managing the exchange rate, instead of money supply or interest rates. This allowed the central bank to change the slope, width and mid-point of the S$NEER band to adjust the pace of appreciation or depreciation of the Singapore dollar. From 1981 to 1985, the S$NEER appreciated by 22 percent. This helped to prevent a repeat of the import price pass-through that had occurred during the first oil crisis. In 1985, Singapore experienced its first post-independence recession. Headline inflation briefly dipped into negative territory in 1986, as a decline in consumer prices were exacerbated by a slump in global oil prices. MAS guided the S$NEER to a lower path. The economy rebounded strongly to 10.8 percent in 1987 but inflation remained relatively subdued. Between 1981 and 1987, inflation averaged about 2 percent annually.

3. 1988-1996: The boom years

   Singapore’s economy staged a strong and sustained recovery, which in turn accelerated domestic headline inflation between 1988 and 1996. In response, MAS allowed the currency to appreciate steadily to contain overall domestic inflationary pressures. Average headline inflation increased to 2.4 percent between 1988 to 1996, compared to 2.2 percent in the previous period.

4. 1997-2004: The crisis years

   From 1997 to 2004, Singapore experienced successive negative shocks: the Asian Financial Crisis in 1997, the 2001 global downturn after the “Tech Bubble” burst and the Severe Acute Respiratory Syndrome (SARS) epidemic in 2003. All this caused headline inflation to turn briefly negative. A weakened economy, elevated unemployment rates, as well as the Government’s liberalisation of various industries such as the telecommunications sector all weighed on consumer prices during this period. As a result, headline inflation averaged 0.7 percent during this period. The MAS guided the S$NEER to a lower path to cushion the economy against the impact of all these macroeconomic shocks.

5. 2005-2012: Domestic constraints and the Global Financial Crisis

   In the latter half of the 2000s, the MAS tightened its exchange rate policy as Singapore’s headline inflation rose rapidly from 0.5 percent in 2005 to a peak of 6.6 percent in 2008. This increase came amid rising global commodity prices, which were driven partly by rising demand from rapidly growing emerging market economies like China. Besides external cost pressures, Singapore’s strong domestic output growth also pushed up headline inflation. In response, the MAS steepened the pace of appreciation of the S$NEER policy band in October 2007. The uptrend in domestic inflation ended in 2009 when the Global Financial Crisis hit, pushing Singapore into recession and dampening inflation. About a year later, Singapore’s economy began staging a robust recovery. Headline inflation recovered and stayed relatively high at 4.2 percent per annum on average in the early 2010s. Concurrently, the low global interest rate environment in the aftermath of the Crisis supported strong demand for private transport and accommodation. This fed through to headline inflation as COE premiums and rental prices rose.

6. 2013–2020: Slower growth and a pandemic

   By 2014, domestic supply constraints in the housing rental market started to ease while car loan restrictions introduced in 2013 moderated car demand. This, along with softening global commodity prices, led to a decline in headline inflation. Singapore’s inflation dropped to an annual average 0.5 percent over this period. This allowed the MAS to adopt a more accommodative exchange rate policy. The COVID-19 outbreak led to a sharp drop in inflation, with headline inflation averaging −0.2 percent in 2020. However, this has been more than reversed as demand has recovered more rapidly than supply, driven partly by severe pandemic-related disruptions to global supply chains.