Singapore’s CPI drops again in July, MAS expects inflation to rise in coming months

Singapore’s consumer price index inflation dropped for the 21st consecutive month in July. On a year-on-year basis, the nation’s inflation came in at -0.7 percent in the month, the same rate recorded in the month of June, according to the data released by the Department of Statistics Singapore.

A smaller drop in private road transport cost countered the effect of lower prices of retail goods. Private road transport cost declined 4.4 percent year-on-year, a moderate decline as compared with June’s drop of 5.7 percent. The smaller drop in private road transport is mainly attributable to a minor decline in car prices from a year ago, given the relatively low base in July 2015, stated MAS.

The price of fuel and utilities also declined in July. They dropped 8.9 percent year-on-year. The overall price of retail items dropped 0.2 percent in July, as compared with the rise of 0.5 percent in June. The drop was mainly due to discounts on footwear and clothing.

However, prices elsewhere in the Singaporean economy continued to rise. Food prices were up 2.1 percent in July, as compared with the same month last year. Services inflation remained unchanged from June at 1.6 percent. Cost of education services rose sharply and was countered by a slower pace of rise in holiday travel expenses.

Meanwhile, the MAS core inflation, which strips the accommodation and private road transport costs, dropped a tad to 1 percent from June’s 1.1 percent, thanks to the decline in the overall retail items’ price.

Looking ahead, the Singaporean central bank expects external sources of inflation to remain muted given sufficient supply buffers in the major commodity markets and subdued global demand conditions. The central bank anticipates global oil prices to average lower for the whole of 2016 as compared to 2015. Meanwhile, the pass-through of wage costs to consumer price is also expected to be restricted by the weak economic growth environment.

The MAS expects core inflation to gradually pick up in the course of the year as the disinflationary effects of oil and budgetary and one-off measures alleviate. But the subdued external price outlook and economic growth prospects are likely to curb the pace of rise in core inflation. Core inflation is expected to average about 1 percent this year, according to the central bank. Meanwhile, the CPI inflation is expected to accelerate in the months ahead and is forecast to come in at a range of between -1 percent and 0.0 percent.