Singapore June inflation remains in red; though higher than expected

Consumer prices in Singapore in June remained in negative territory, although higher than what the markets had expected as the continuing drag from housing and utilities have subsided following easing out of the effects of government rebate in services and conservancy charges.

Singapore’ headline inflation registered  -0.7 percent y/y in June, up from -1.6 percent in the previous month. Prices of housing and utilities registered -4.2 percent in June compared to -6.4 percent in May. More importantly, transport inflation has picked up to -4.3 percent y/y, from -5.7 percent in the previous month.

The easing of car loan regulations announced by the Monetary Authority of Singapore (MAS) has resulted in increase of car purchases, which in turn, has led to upward adjustments in the COE premiums. This has lifted the private transport CPI index given the strong influence of COE premiums on the index. Private transport CPI accounts for 11.5 percent of the overall CPI basket.

Furthermore, Inflation is expected to average -0.5 percent and 0.9 percent in 2016 and 2017 respectively. It is expected to remain stuck in negative territory until the end of the year or the earlier part of next year. Separately, core inflation picked up marginally to 1.1 percent y/y, from 1.0 percent previously. And it is likely to remain positive in the months to come, DBS reported.

Against this backdrop, the central bank is more likely to keep its monetary policy on hold unless there is further downside risk to growth or core inflation. In addition, industrial output is expected to fall by 1.4 percent y/y in June, the report added.

Meanwhile, the near-term global outlook remains subdued given the slowdown in the Chinese economy, the fallout of Britain after the Brexit outcome and a sluggish trend in the United States.