High oil prices affect multiple industries, and China's inflation may rise to 3% | Lianhe Zaobao

The surge in crude oil prices is gradually expanding its impact on Singapore's prices. Not only are electricity, transportation, and shipping costs directly affected, but many consumer goods that use petrochemical products as raw materials also face rising cost pressures. Economists predict that these upstream supply chain cost increases may soon be passed on to consumers, with local inflation rates potentially rising to a maximum of 3%. The Strait of Hormuz, an important passage for transporting crude oil and natural gas, remains closed, putting immense pressure on energy supplies. Crude oil is a crucial raw material for producing petrochemical products, which are widely used in consumer goods such as plastic packaging, paints, toys, and cosmetics. The rise in crude oil prices may lead to an increase in the prices of various goods. Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, pointed out in an interview with Lianhe Zaobao that transportation and utility costs in the consumer price index (CPI) basket are most affected by fluctuations in energy prices, as they adjust quickly with changes in global oil prices. In addition, petrochemical derivatives that rely on crude oil, such as plastics, synthetic materials, and packaging, will see higher manufacturing costs, which will also drive up the prices of household goods and personal care products. Food inflation is affected to a relatively indirect extent, but should not be underestimated. The Middle East is one of the world's major exporters of urea, and urea is an essential nitrogen fertilizer in food production. Any disruption in supply will impact the global agricultural industry. Regarding the impact on various industries, Mobeen stated, "Transportation operators and food service businesses may feel the cost pressure first, as fuel, electricity, and logistics account for a higher proportion of their operating costs." Interviewed companies have already felt the pressure of rising costs. Lin Jiehui, head of local plastic packaging manufacturer Tobe Packaging, revealed that the company has encountered some issues in obtaining key raw materials. Several suppliers have issued force majeure notices, and in some cases, confirmed shipments of resin products, despite being booked months in advance, are still being canceled. Resin is the main raw material for producing plastics. These factors have led to a significant increase in company costs, especially for resin, which has seen price increases of over 50%. "At the same time, auxiliary materials that rely on petrochemical derivatives, such as thinners, inks, and adhesives, have almost immediately increased in price following the outbreak of conflict in the Middle East, further pushing up production costs." Currently, the company is managing to absorb some of the cost increases to maintain stable supplies for customers. However, it has informed customers of this situation so that they can prepare for potential price adjustments and longer delivery times in the event of continued supply disruptions. According to the latest data, the core inflation rate in our country in February was 1.4%, up from 1.0% in January, mainly due to rising inflation in categories such as services, food, and retail, as well as seasonal factors related to the Lunar New Year. OCBC Bank's chief economist, Selena Ling, holds a cautious outlook on inflation prospects. "If the situation in the Middle East remains unresolved or escalates, crude oil prices remain high for an extended period, and the Strait of Hormuz continues to be closed, local overall and core inflation may rise to 2% to 3%." However, she pointed out that the extent of price increases also depends on the elasticity of consumer demand. There is limited room for essential goods, but for non-essential goods, consumers may have more choices or may tighten spending to cope with price increases. UOB economist Xu Junjie said that about 7% to 8% of the items in Singapore's overall CPI basket may be directly affected by fluctuations in oil and gas prices, including airfares, public transport fees, gasoline, electricity, and gas fees. In addition, attention should be paid to the shortage of three raw materials: helium used for semiconductor manufacturing, urea used as nitrogen fertilizer, and naphtha used for plastic production. The supply of these raw materials is affected, which may impact local manufacturing and food supply. UOB has raised its overall inflation and core inflation rate forecasts for 2026 from the previous 1.5% to 2% and 1.9%, respectively. The official forecast for the full-year inflation range in 2026 is now 1% to 2%, and the Monetary Authority of Singapore will update the inflation outlook in its monetary policy statement in April. Mobin believes that factors such as the strength of the Singapore dollar will overall constrain local inflation. Nevertheless, he has raised the overall inflation rate forecast from the previous 1.9% to about 2.2%