July headline inflation of Singapore came in at -0.4% y/y (Jun: -0.3; May: -0.4%). The small drop in headline inflation was driven by lower CoE prices and a deepening drag in the rental market. Core, on the other hand, rose 0.4% y/y, driven by higher electricity tariffs and a pickup in services costs.
Barclays foresees, the headline CPI to stay in negative territory in H2, driven by the following factors:
- 1) prolonged weakness in housing rentals
- 2) further declines in private road transportation owing to a high base for COE prices and increased near-term supply
- 3) slower pass-through of higher labour costs, with businesses absorbing higher labour costs amid offsetting declines in energy and rents.
The annual inflation rate of the country is likely at -0.5% in 2015 is same to the MAS expectation. Whereas, core inflation is likely to be at the lower end of the MAS' 0.5-1.5% forecast range, with higher utility bills and potentially higher food prices from El Niño weather effects likely offsetting weakness in services in the near term estimates Barclays. That said, the persistent tightness in the labor market as well as the ongoing labour restructuring to push services costs and the path of core inflation higher in the coming months.
