Singaporean headline consumer price inflation eases in June, core rate to fall further in July

The Singaporean headline consumer price inflation eased in the month of June. On a year-on-year basis, the CPI All-Items inflation slowed to 0.6 percent from May’s 0.9 percent, as compared with market expectations of 0.8 percent.

Sequentially, the CPI-All Items index dropped 0.2 percent, driven by a decline in transport costs in the month. This was mainly due to lower petrol prices and fall in car COE prices. Retail related prices also dropped owing to the annual Great Singapore Sale.

Even if the Open Electricity Market was fully rolled out nationwide in May, consumers are still making the switch to alternative electricity retailers. The led to a 0.5 percent fall in fuel and utilities price in the month, in spite of the regulated electricity tariff price staying unchanged.

The MAS core inflation rate eased as well in the month. The core rate slowed to 1.2 percent year-on-year from 1.3 percent seen in May. This continues the moderation in core inflation since its recent peak at 1.9 percent recorded in December 2018. Core inflation is expected to fall further towards 1 percent in July before stabilizing, noted ANZ in a research report.

“Given the current weak growth backdrop and downside risks to the outlook given the uncertain external environment, we are unlikely to see much inflation pressure. This Friday’s Q2 labour market data will give us an indication whether employment, and therefore wage setting conditions, are feeling the effects of weak economic conditions”, stated ANZ.

The MAS is maintaining their current inflation projection for the whole of this year. Downside risks are possible for the core inflation forecast. It might come in at the lower end of the range.

“With the weak NODX data last week and today’s CPI data showing continued moderation in core inflation, we maintain our view of a 50bp slope reduction of the policy band at the scheduled October review, though an earlier intra-meeting move cannot be ruled out”, added ANZ.