Singapore May headline inflation likely to decline for 19th straight month

Singapore’s headline inflation for the month of May is expected to fall for the 19th consecutive month, marking the record-long streak of negative inflation. Drop in housing as well as utilities prices, coupled with lower oil price, led the continuous fall in consumer prices.

The headline CPI inflation for May is due today and expectation is for it to register -0.7 percent y/y. In fact, CPI inflation is expected to revert back to positive level from 3Q16 onwards, on account of the low base in the same period last year and the recent recovery in oil prices. Overall, inflation for the year is still expected to register -0.2 percent, DBS reported.

Apart from weak prices in housing, utilities and oil sector, a slowdown in growth momentum and the impact of earlier macro-prudential measures on housing and car purchases are also having significant impact on the headline number. However, easing in car loan financing regulations is most likely to lift headline inflation to a positive level in the near term.

"The easing in car loan regulations is expected to bring about increase in car purchases and henceforth, upward adjustments in the COE premiums. That in turn is expected to lift the private transport CPI index given the strong influence of COE premiums on the index," DBS said in a research note.

Further, the Monetary Authority of Singapore (MAS) has relaxed the previous curbs on car loans last month. With the changes, the maximum loan-to-value ratio for vehicles on the open market less than or equal to SGD 20,000 will be raised from 60 to 70 percent, and that for vehicles more than SGD 20,000 will be upped to 60 percent, from 50 percent previously, the report said.

However, the recent easing in car loan is unlikely to have little effect on the upcoming MAS decision. In this regards, core inflation is still likely to hover between the 0.0-1.0 percent range and more importantly, below the medium-term target of 2.0 percent.