Consumer prices fall for 19th straight month

Consumer prices fell again last month - the 19th month of decline and the longest stretch of negative inflation since 1977.

The consumer price index (CPI) declined 1.6 per cent in May compared with the same month last year, after falling 0.5 per cent in April.

May's price fall was the biggest decline since prices fell 2.5 per cent in August 1986.

It was also a greater slide than the 0.8 per cent forecast by a Bloomberg poll of economists although there were special factors last month.

Overall CPI was pulled lower by housing and utilities costs, which fell 6.4 per cent year on year in May, and transport costs, down 5.7 per cent.

Service and conservancy charge (SC&C) rebates were given out last month but not in May last year, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry yesterday.

The rebates would have lowered housing maintenance and repair costs for May this year.

This combined with falling rents amid a housing slowdown helped reduce overall accommodation costs.

Private transport costs fell 7.6 per cent, driven by lower petrol prices.

Core inflation - this strips out accommodation and private road transport costs to better gauge everyday expenses - rose 1.0 per cent year on year last month, after a 0.8 per cent rise in April.

Last month's core inflation figure was a 14-month high.

That was due in part to a jump in services inflation and came off a low base in the same month last year.

The fact that core inflation has been positive suggests that Singapore is far from a deflationary spiral, said UOB economist Francis Tan.

During the 2008 global financial crisis, for example, core inflation fell for nine straight months due to a lack of consumer demand and price cutting by businesses.

"Moreover, unemployment spiked during that period and Singapore entered into technical recession. The economic indicators currently are not pointing to such adverse conditions," noted Mr Tan.

Yet while economic growth continues to be positive, it is expected to be slower this year.

A recent MAS survey of economists tipped growth of 1.8 per cent for this year, down from a forecast of 1.9 per cent made in March and 2.2 per cent made in December.

While Singapore's negative inflation has been partly due to policy measures such as loan curbs, every economic downturn over the past few decades has been juxtaposed with a similar trough in inflation, said DBS senior economist Irvin Seah.

"Inflation and growth are weighed down by almost similar factors, such as weak global demand. The downside risk on inflation may well be a mirror image of the risk to growth," he said.

The MAS said yesterday that overall CPI is expected to remain negative for the rest of the year, while core inflation could pick up gradually with some recovery in oil prices.

wrennie@sph.com.sg

This article was first published on June 24, 2016.
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