Inflation down for 16th straight month

Consumer prices fell in February, for the 16th straight month - equalling the longest stretch in Singapore history - though core inflation rose slightly on higher food prices.

Headline consumer price inflation fell 0.8 per cent last month from February last year, due mainly to a fall in demand for Certificates of Entitlement (COEs) and a weaker housing rental market.

This was marginally worse than the 0.7 per cent price fall expected by economists in a Bloomberg poll, and came after a 0.6 per cent dip in January, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry said yesterday.

Last month's disinflation puts this stretch of falling prices - brought on by property cooling measures and a global oil price rout - on par with Singapore's longest deflationary streak from October 1975 to January 1977.

Even so, core inflation was up 0.5 per cent in February, marginally higher than the 0.3 per cent rise expected in a Bloomberg poll. In January, core inflation rose 0.4 per cent from a year ago. Core inflation excludes home rents and private road transport costs to better gauge everyday expenses.

Food inflation climbed 2 per cent last month, after rising 1.7 per cent in January, though economists noted this could be a temporary effect of the Chinese New Year period.

Private road transport costs fell 3.9 per cent and accommodation costs were down 3.2 per cent.

Economists expect the MAS to keep monetary policy unchanged at its bi-annual meeting next month, despite market hopes for some easing stimulus as weak industry and job data this year has stoked fears of an economic slowdown.

Instead, the market will have to search for clues to the central bank's next move in today's Budget. ANZ economist Weiwen Ng said: "We expect the Government to lean on fiscal levers rather than the exchange rate to provide targeted stimulus."

UOB economist Ho Woei Chen noted that core inflation, MAS' preferred guide for its monetary policy decisions, has ticked up in line with its forecast range.

"With the midpoint of the central bank core inflation expectations at 1.0 per cent, higher than the 0.5 per cent in 2015, we risk looking at a steeper, and not less steep (appreciation path for the Singdollar)," said Ms Ho.

MAS yesterday reiterated that it is sticking with its previous projections for whole-year core inflation to be in the range of 0.5 - 1.5 per cent.

It also stood by its full-year headline inflation forecast of between -1.0 and zero per cent, which it revised down from an earlier forecast of -0.5 per cent to 0.5 per cent, on the back of a steep fall in oil prices and a decline in COE premiums by about $2,500 on average over the first four bidding exercises of 2016.

The central bank said: "On the domestic front, wages are expected to continue to increase in 2016, although at a more moderate pace than in the previous year."

marilee@sph.com.sg

This article was first published on March 24, 2016.
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