Singapore’s consumer price inflation declines 0.3 pct y/y, likely to rise in months ahead

Singapore’s consumer price inflation declined for the 22nd consecutive month in August; however, it registered a smaller drop of 0.3 percent year-on-year in August, as compared with the decline of 0.7 percent in the previous month, according to Monetary Authority of Singapore. The smaller drop greatly reflected a moderation in the decline in private road transport cost, and to a slight extent, higher services inflation. On a sequential basis, consumer prices rose 0.5 percent in the month.

Cost of private road transport dropped by a more modest 1 percent, as compared with the decline of 4.4 percent in the previous month, owing to the expiry of the one-year road tax rebate for petrol vehicles. Meanwhile cost of accommodation decline 3.6 percent, similar to July, showing the persistent weakness in the housing rental market.

Services inflation rose 1.7 percent, as compared with 1.6 percent in the previous month. Public road transport cost rose 0.9 percent, as compared with a drop of 0.8 percent July, given the low base in August 2015. Meanwhile, the price of education services increased at a slower pace, showing a moderate rise in university fees as compared to last year. On the other hand, food inflation dropped a bit to 2 percent in August from 2.1 percent in the previous month, owing to smaller rise in non-cooked food cost that more than countered the stronger rebound in restaurant meals prices.

Meanwhile, MAS core inflation continue to be stable at 1 percent, the same as in July, as the rise in services inflation was countered by moderate rise in food prices.

According to MAS, external sources of inflation are expected to remain muted, owing to large supply buffers in the major commodity markets and subdued global demand conditions. Global oil prices are likely to average lower for the entire 2016 as compared to 2015. Meanwhile, on the domestic front, labor market tightness has eased, with wage growth likely to decelerate slightly during 2016. The pass-through of wage costs to consumer prices are expected to be restrained by the weak economic growth environment.

Meanwhile, MAS core inflation is likely to rebound gradually during the course of 2016 as the disinflationary impacts of oil and budgetary and other one-off measures ease. But the rate of rise in MAS core inflation would be constrained by subdued external price outlook, reduction in labor market tightness and weak economic growth prospects.

“For 2016, MAS Core Inflation is likely to average around 1%. CPI-All Items inflation has troughed in Q2, and is projected to rise in the coming months. Private road transport cost is anticipated to increase, even as housing rentals continue to dampen overall inflationary pressures. For the year as a whole, CPI-All Items Inflation is forecast to come in at -1.0–0.0%”, added MAS.