Singapore’s core inflation firmed again in August. Here’s why we remain constructive on SG equities.

The energy-linked layer held steady, with electricity & gas inflation unchanged at 8.7% YoY as the 3Q26 electricity tariff stayed in place. The movement came from the core layer instead: services, retail goods and food all firmed, which is exactly the second-round pass-through that MAS has been flagging.

This matters more than the headline number suggests. A one-off electricity tariff hike lifts prices once and then drops out of the YoY comparison a year later. Broadening price increases across transport services, clothing, personal care and hawker food tend to be stickier, because businesses reprice to protect margins once their own energy and delivery costs rise.

A note on the 0.6% MoM jump in headline CPI: this looks larger than it is. Accommodation rose 1.8% MoM in August, largely reflecting the reversal of the Service & Conservancy Charges (S&CC) rebates disbursed in July. Stripping out accommodation, prices rose a more modest 0.2% MoM, while core prices rose 0.3% MoM, the same pace as in July.

Table 1: Singapore CPI, August 2026 Snapshot

Indicator	Aug 2026	Jul 2026	Comments
CPI-All Items (YoY)	2.3%	2.2%	Higher core inflation more than offset lower private transport inflation. The 0.6% MoM rise was flattered by the reversal of July’s S&CC rebates.
MAS Core Inflation (YoY)	2.2%	2.0%	Broad-based pickup in services, retail & other goods and food. Core prices rose 0.3% MoM.
Transport (YoY)	8.1%	7.9%	Land Transport Services (+8.3% YoY) and airfares (Other Transport Services +12.8% YoY) accelerated, even as private transport inflation eased to 7.5% on smaller car price increases.
Housing & Utilities (YoY)	1.3%	1.3%	Unchanged. Utilities & Other Fuels held at 6.1% YoY with the 3Q26 electricity tariff still in effect; housing rents rose at the same pace as in July.
Food (YoY)	2.3%	2.2%	Edged up on higher food services inflation (hawker centres, food courts and coffee shops +2.4% YoY), even as non-cooked food inflation moderated.
Clothing & Footwear (YoY)	3.1%	1.5%	Doubled from July, with prices up 1.8% MoM, contributing to the pickup in retail & other goods inflation.
Health (YoY)	3.3%	3.3%	Unchanged, still driven by health insurance premiums, up 8.6% YoY.
Full-year 2026 forecast (Core / All Items)	1.5–2.5%	1.5–2.5%	Unchanged. Core inflation expected to stay elevated into 2027 before moderating more discernibly from around mid-2027.
Source: MAS, MTI, Department of Statistics Singapore. Singapore Consumer Price Index (2024 as Base Year), August 2026, published 23 Sep 2026; MAS and MTI, Consumer Price Developments in August 2026, 23 Sep 2026.

Related article: Singapore’s inflation edged higher. Here’s why we remain constructive on Singapore equities.

MAS and MTI keep forecasts unchanged, but flag broadening pressures

MAS and MTI kept their full-year 2026 forecasts for both MAS Core Inflation and CPI-All Items unchanged at 1.5–2.5%. Year-to-date averages of 1.6% (core) and 1.8% (headline) sit in the lower half of that range, but the recent run-rate is higher.

The outlook commentary points the same way. The authorities expect the prices of a wider range of Singapore’s imported goods and services to pick up in the quarters ahead as higher input costs pass through global supply chains. They also added a new food-related concern, noting that adverse weather conditions are expected to lower agricultural yields and push up Singapore’s imported food prices.

On the domestic side, the picture remains reassuring. MAS and MTI expect services unit labour costs to rise at a slower pace amidst sustained productivity growth and moderating nominal wage growth, while enhanced government subsidies continue to dampen services inflation. In other words, the current inflation is largely imported rather than wage-driven, which remains more manageable for a small open economy with an exchange rate-based policy framework.

Fiscal support is also helping to cushion the impact on households. Following the April 2026 support package, the enhanced Budget 2026 Cost-of-Living Special Payment of SGD 400 to SGD 600 was credited to over 2.4 million adult Singaporeans from 9 September, on top of additional U-Save rebates for HDB households earlier in the year. Such cash transfers support household real incomes rather than lowering measured inflation, since the CPI tracks prices rather than incomes. However, they should help sustain consumer spending at a time when rising living costs could otherwise make households more cautious, which is mildly supportive for domestically oriented sectors such as retail.

The authorities judged that risks remain tilted to the upside. Beyond renewed energy supply disruptions or worse-than-expected weather, they flagged that inflation could prove more persistent than projected if robust IT investment growth generates stronger demand spillovers globally and in Singapore. On the downside, an unexpected tightening in global financial conditions or a pullback in AI-related investment could slow economic activity and, in turn, lower inflation.

Related article: MAS’ July Tightening: A firmer policy signal, an unchanged investment case

What to watch: a widening energy shock, the 4Q26 electricity tariff and MAS’s October review

Our house view is that the energy shock will not fade quickly. Since August, the Middle East conflict has widened from one chokepoint to two. The Houthis have taken effective control of the Bab el-Mandeb Strait, and a drone strike forced Saudi Arabia to shut its East-West pipeline on 11 September, removing the main route that lets Saudi crude bypass the Strait of Hormuz.

More importantly, refining capacity rather than crude supply remains the binding constraint. Middle East refinery runs are roughly a quarter below pre-war levels, Russian diesel exports have collapsed amidst repeated drone strikes on its refineries, and US refiners were running at close to 98% utilisation in late August, leaving little spare capacity to fill the gap. Diesel crack spreads have nearly tripled since the war began. Even a ceasefire would not resolve this bottleneck quickly, which is why we expect energy-related inflation to stay higher for longer.

This matters for Singapore because refined fuel costs feed directly into the components that drove August’s pickup. Airfares and point-to-point transport fares are sensitive to fuel costs, while higher fuel and shipping costs, including longer voyages as vessels avoid the Red Sea, raise the cost of imported goods and the operating costs of retailers and food businesses. We therefore expect the second-round pass-through seen in August to persist in the coming months.

The next key data point is the 4Q26 electricity tariff revision, due around 30 September 2026. Because the tariff is set using average natural gas prices in the first two and a half months of the preceding quarter, the 4Q26 tariff will reflect gas prices from July to mid-September. EMA has indicated that the Q4 tariff could ease if the Middle East situation improves but could rise more sharply if it does not.

With the conflict having escalated rather than eased, we think a meaningful reduction is unlikely. Much of the escalation also occurred in September, towards the end of the reference window, so its full impact is more likely to show up in the 1Q27 tariff. In our view, electricity & gas inflation is likely to stay elevated into early 2027, on top of the second-round effects already flowing through services and retail prices.

Beyond that, MAS’s October Monetary Policy Statement will be closely watched. Central banks globally have turned more hawkish in response to the same energy shock: the US Federal Reserve raised rates on 16 September for the first time since 2023, the European Central Bank has hiked twice this year, and the Bank of Japan lifted its policy rate to 1.25%, a 31-year high.

Having tightened in both April and July, MAS now faces core inflation at a near two-year high, strong growth momentum and an energy shock we expect to persist. Against this, the labour market is showing early signs of softening, with 2Q26 retrenchments at their highest since 4Q20 and job vacancies falling.

On balance, we expect MAS to keep its policy settings unchanged in October. A persistent energy shock does not by itself call for further tightening: MAS's April and July moves were made in response to higher energy costs, and keeping the S$NEER on its current, steeper appreciation path would continue to dampen imported inflation. With core inflation for the first eight months within its 2026 forecast range, the labour market softening and the earlier tightening still working its way through the economy, we think MAS has room to wait. The key risk to this view is evidence that second-round effects are running ahead of MAS's projections, such as core inflation moving towards the upper end of its forecast range or wage pressures re-emerging, which could prompt a third consecutive tightening.

Related article: We said the Middle East ceasefire was dead. It has since escalated into a two-front war.

What this means for investors

Singapore’s inflation and monetary policy picture remains manageable. Prices are firming and pass-through is broadening, but inflation is tracking within MAS’s forecast range, wage pressures are moderating, and the SGD continues to act as a steady, calibrated shock absorber. This is not an inflation crisis; it is a contained adjustment to an external shock. This also reinforces the SGD’s role as a wealth preservation currency and indirectly supports continued capital inflows into SGD-denominated assets. In turn, this could enhance Singapore’s appeal as a global wealth management hub, potentially benefiting the banks.

For the equity market, a contained inflationary environment and a gradually firming SGD are broadly supportive. The clearest benefit of a stronger currency accrues to investors: for foreign investors, SGD appreciation adds a currency gain on top of dividends and capital returns, enhancing the appeal of Singapore equities as a relatively stable, high-yielding market. At the company level, the effect of a gradual appreciation is modest and mixed. Companies that earn largely in foreign currencies, including semiconductor names, face a mild translation headwind, but we believe demand fundamentals more than offset this. Combined with Singapore's strong 2Q26 GDP growth of 5.9% YoY and the ongoing AI investment tailwind, we continue to see semiconductor stocks as key beneficiaries of the AI upcycle.

While MAS tightens through the exchange rate rather than interest rates, global borrowing costs are expected to remain elevated as inflationary pressures persist, leaving S-REITs exposed to potential cap rate expansion and near-term refinancing risks. Investors should approach S-REITs selectively, focusing on names where (1) balance sheets are healthy, with lower gearing and predominantly fixed-rate debt; and (2) the underlying sub-sector has structural demand drivers that are independent of the rate cycle. We see greater resilience in names such as CapitaLand Ascendas REIT (SGX: A17U), CapitaLand Integrated Commercial Trust (SGX: C38U), Keppel DC REIT (SGX: AJBU), Digital Core REIT (SGX: DCRU) and Stoneweg Europe Stapled Trust (SGX: SEB).

At the index level, however, the STI’s heavy weighting towards the banks, which stand to benefit from elevated rates, should help offset pressure on rate-sensitive sectors such as S-REITs.

Related article: S-REITs: Selectivity remains key as 1H26 earnings confirm an uneven recovery

The case for Singapore equities remains intact

The investment case rests on multiple pillars.

First, the banking sector continues to anchor index income, with the current environment becoming increasingly supportive of earnings. With global inflation proving sticky and the US Federal Reserve resuming rate hikes in September, interest rates are likely to remain elevated for longer. As Singapore’s domestic interest rates tend to track US rates, this should support banks’ net interest income and, depending on the pace of deposit repricing and loan growth, net interest margins. Healthy loan growth provides an additional earnings driver.

Beyond interest income, the banks’ wealth franchises continue to strengthen. In 1H26, all three local banks reported strong growth in wealth-related fees: DBS’s wealth fees rose 33% YoY, with assets under management (AUM) surpassing SGD 500 billion; OCBC’s wealth fees grew 27%, alongside record AUM of SGD 350 billion; while UOB’s wealth fees increased 16%, with high-net-worth AUM reaching SGD 204 billion. We expect safe-haven flows into Singapore to persist amidst ongoing geopolitical uncertainty, supporting continued momentum in wealth management across the sector.

Among the three, DBS (SGX: D05) remains our top pick, offering the strongest combination of earnings quality, capital returns and an annualised forward yield of around 4.6% over the next three years.

Related article: Fee-led growth, compelling total returns: Singapore banks after 1H26

Second, industrials have become the STI’s primary earnings growth driver, with consensus earnings growth for 2026 (30.0%) dwarfing other major sectors like the banks (7.1%) and REITs (4.1%). Industrials have overtaken S-REITs to become the STI’s second-largest sector weighting, led by ST Engineering and Yangzijiang Shipbuilding, both of which offer multi-year earnings visibility through record order books of SGD 35.7 billion and USD 22.4 billion respectively (as of 30 June 2026).

Figure 1: Industrials lead STI earnings growth in 2026 and beyond.

Related article: Industrials cement their role as the STI’s earnings growth engine

Third, Singapore’s integration into the global AI semiconductor supply chain continues to show through in the trade data. NODX surged 46.2% YoY in August 2026, accelerating from a revised 24.1% in July and well above expectations, marking the strongest growth since October 1988. Electronics NODX more than doubled, rising 131.8% YoY (July: +112.0%) on robust AI-related demand. While part of August’s strength reflects a low base, this marks the fifth consecutive month of NODX growth above 20%, driven by accelerating hyperscaler AI infrastructure spending. Beneficiaries include SGX-listed names like AEM Holdings (SGX: AWX), UMS Integration (SGX: 558) and Frencken (SGX: E28).

Related article: NODX at 46.2%: Singapore’s strongest export print since 1988 confirms broadening upcycle

Fourth, ongoing capital market revitalisation is broadening participation and depth. SGX’s SDAV hit SGD 1.8 billion for the full year ended June 2026 (+34.9% YoY), while small and mid-cap (SMID) trading activity strengthened across three consecutive half-year periods. Close to 30 new listings are expected in 2026, and the upcoming SGX-NASDAQ dual-listing bridge could accelerate this further, potentially diversifying the index beyond its historically financials- and real estate-heavy composition toward higher-multiple “new economy” names. Longer-term, the CPF Lifecycle Investment Scheme, announced at Budget 2026 for a 2028 launch, could direct up to SGD 9 billion annually into Singapore equities, a structurally significant new source of domestic liquidity.

We maintain our constructive view on Singapore equities, with an STI target of 6,223 by end-2028 and an average dividend yield of approximately 4.1% till 2028, reflecting a total return of 21.3% (as of 23 Sep 2026). For diversified exposure to Singapore’s structural growth story, we continue to recommend the Amova Singapore STI ETF (SGX: G3B) and the iFAST-Amova Singapore Equity Fund (higher small and mid-cap exposure).

Related article: Singapore Outlook 2H26: Yield, growth and revitalisation in one market

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.