Singaporean headline inflation likely to remain negative for remainder of 2020

Singaporean consumer price inflation came in line with market expectations. On a month-on-month basis, the CPI-All Items index was the same. Food prices continue to rise, as supply disruptions continue to increase the cost of importing. However, these were countered by lower prices for other retail goods and services. This is a familiar theme that is likely to continue, said ANZ in a research report.

Although most retail businesses are permitted to open under Phase 2, consumer demand remains soft. Uncertainty regarding job prospects, with first quarter seeing a 25k fall in employment and second quarter likely to see similarly large falls, has made households cautious. This will not only keep a lid on price rises for non-essential items, but is also likely to lead to further discounting to spur demand, said ANZ.

This is why the prices for the miscellaneous good and services category have dropped for the fourth straight month, taking its year-on-year price fall to 1.9 percent which is the lowest on record. Further price falls are likely. July is expected to record a drop in utilities prices due to the lagged effect of lower oil prices. However, alongside food prices, private road transport costs are expected to rise as petrol prices have increased in line with the recent rise in global oil prices, and COE car prices have increased when the bidding started again. However, this is likely to be temporary.

“The broad story is that inflation, both at the headline and core level, will remain negative for the rest of this year. We anticipate the MAS Core Inflation will fall further to -0.4 percent y/y over the next two months. Economic activity has started to recover, but ample spare capacity in the economy will keep a lid on inflation for a while. However, we do not expect any deflationary threat to take hold.  We expect the MAS to keep their current neutral settings unchanged at the October review. Further monetary policy easing, via a re-centring lower of the policy band, will only be on the table if there were a renewed downturn in economic activity”, added ANZ.