Singaporean headline inflation falls in April, unlikely to return to positive territory before end of 2020

Singaporean headline inflation came in at -0.7 percent year-on-year in April, falling from 0.0 percent recorded in the prior month. This was below the median consensus estimate of -0.5 percent year-on-year, mainly led down by a deflationary spin in the transport basket. Core inflation came in negative at -0.3 percent year-on-year, but was otherwise widely stable when compared with previous months.

The private transport sector mainly drove the inflation lower in April, coming in at -5.5 percent year-on-year. This was largely expected, given the continued fall in global crude oil prices last month, especially with the negative WTI price episode in mid-April. The suspension of ERP charges in April also led to solid deflationary pressures in this segment.

The raw food basket recorded a rise in prices, rising 3.5 percent year-on-year. The various lockdown measures in other nations had disrupted global and regional supply chains, causing increase in prices of food necessities. This is likely to continue through May but might begin to ease from June, given the gradual easing of movement restrictions in the region, noted OCBC Bank in a research report.

Even if headline inflation is expected to reach a trough by the end of second quarter, overall inflationary forces are likely to remain subdued. The inflation figures are likely to remain approximately consistent in May. With the rollback of circuit-breaker measures starting from June and firming crude oil prices, pockets of inflationary pressure are likely to begin manifesting from next month. Nevertheless, oil prices are still quite low by historical standards and the weakening labor market is likely to cap domestic cost pressures.

“We do not expect the domestic economy to return to positive inflationary territory before the end of 2020. Even though deflationary forces are expected to hit a trough in Q2, we still see the Singapore economy experiencing an average deflation of about -0.5 percent yoy in H2”, added OCBC Bank.