Singaporean headline inflation accelerates in August

Singaporean headline inflation accelerated in August. On a year-on-year basis, the consumer price inflation rose to 0.5 percent, reversing a downtrend in inflationary pressures for the first time since June 2019. Consensus expectations were for inflation to come in the range between 0.1 percent and 0.7 percent.

Increased year-on-year prices in the transport basket of 1.1 percent, in addition to a mean-reversion in raw food price gains from the 18-month low of 0.7 percent, greatly led the recovery in year-on-year headline inflation from 0.4 percent July to 0.5 percent last month. In spite of the collapse in crude oil prices in August, COE prices seemed to have strengthened on a sequential basis, which in turn contributed to the overall headline inflation rate rise.

However, core rate stayed stable at 0.8 percent for the second straight month, matching the lowest rate since April 2016. The core inflation rate has averaged 1.3 percent year-to-date in 2019.

“As we enter the final quarter of 2019, the headline inflation rate is likely to pick up into December, largely due to the low base from the transport basket a year ago”, said Howie Lee, Economist, OCBC Bank.

The global crude oil prices had collapsed in November 2018 and the COE prices had greatly started displaying a downturn beginning September 2018. These two factors combined implies that the transport basket is likely to show larger year-on-year gains for the rest of 2019, which in turn might push the headline inflation rate back to the 1 percent handle before the year ends.

“A return to the 2 percent level within 2020, however, appears unlikely at present, given the challenging economic landscape poised in the year ahead”, added Howie Lee.