Third, wage increases of the past three quarters affect current wages with a summed coefficient of less than 0.5, implying that lagged impulses fade within a few quarters. Fourth, the effect of price pressures on wage increases is empirically weak; wages respond less than proportionately to prices during the year. Combined, these estimates suggest that the pass through from costs to domestic prices is subject to relatively contained momentum and feedback effects. But the entire course of the pass-through process is still characterised by a degree of persistence. Accordingly, in the absence of further major global price shocks, domestic inflation should not accelerate further in Q4, but could remain elevated relative to the historical average. A key upside risk factor influencing the ongoing pass-through to consumer prices is the behaviour of cost mark-up by businesses. Profit margins might have been impaired in the earlier period when global costs shocks were intensifying, and businesses might be inclined to restore them at least partially in the period ahead. Monetary policy stance has progressively tightened Singapore’s short-term AS curve is gradually shifting to the right as global costs subside and non-resident worker inflows pick up. Wages in the first half of the year traced out a temporarily steeper portion of the Phillips Curve but are expected to revert to their historical configuration in the period ahead. The external components of the IS curve could moderate in the quarters ahead. These represent pro-equilibrating movements, but we are alert to unexpected developments and fresh shocks.

Speeches  Published Date: 01 September 2022  “An Update on the Global and Domestic Economic Conjuncture” – Summary of Remarks by Mr Edward Robinson, Deputy Managing Director (Economic Policy) & Chief Economist, MAS, at a Citibank Macro Fireside Virtual Event on 1 September 2022 Summary of remarks on the Global and Domestic Economic Conjuncture Global Economic Developments: A Narrow Ridge to a Soft Landing Aggregate demand-supply imbalances continue to engender elevated inflation rates across many economies. However, tighter financial conditions, including from higher policy interest rates, coupled with fresh uncertainties, are imparting a moderating effect on demand among the advanced economies. This should dampen the pace of future price increases but still leave inflation somewhat elevated for a while. These ongoing global inflation-growth shifts present challenges for the calibration of the monetary policy stance. The perceived stridence of the recent Jackson Hole discussions belies a complex calculus confronting central banks. The path forward for the global economy can be cast in terms of a narrow ridge that needs to be traversed to achieve a soft landing, in which inflationary pressures recede with further rate hikes to a level above the neutral rate of interest. In this scenario, growth slows, but the current (positive) output and (negative) unemployment gaps do not reverse and widen materially. It is useful to illustrate these considerations with respect to the US economy. The ridge to a soft landing in the US appeared to reach a more challenging turn during the early to mid-summer.