Inflation stays negative for 10th straight month

Inflation stays negative for 10th straight month
Cheaper cars, together with lower accommodation costs, helped check inflation last month. The Consumer Price Index decreased by 0.8 per cent compared with August last year, and analysts expect inflation to stay weak for the rest of the year.
PHOTO: The Straits Times

Cheaper cars and accommodation kept inflation firmly in negative territory last month, for the 10th month in a row.

The Consumer Price Index (CPI) dropped by 0.8 per cent compared with August last year, with analysts expecting inflation to stay weak for the rest of the year.

Housing and utilities led the fall, declining 3.6 per cent, while transport was down 2.3 per cent.

Household durables and services, which include items such as washing machines, were down 2.2 per cent.

Without accommodation and private road transport, core inflation rose a slight 0.2 per cent, which is still below what most economists had predicted.

But food and education, two staples of the Singaporean household, rose, data from the Statistics Department showed.

Food prices went up by 1.9 per cent, mostly on the back of more expensive restaurant meals.

Education was up 3.7 per cent, largely the result of costlier tuition and other fees.

Inflation between January and last month was down 0.4 per cent compared with the same period last year.

The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said "external sources of inflation are expected to stay generally benign, given ample supply buffers in the major commodity markets".

"Notably, global oil prices are likely to be subdued and come in much lower for the whole of 2015 compared to the US$93 average recorded last year," said MAS and MTI in a statement yesterday.

"Similarly, global food commodity prices should remain soft in the near term owing to abundant stockpiles, but could recover subsequently given the risks to global food harvests from the El Nino weather phenomenon."

The MAS maintained its outlook for core inflation, which is expected to come in at the lower half of the 0.5 per cent-to-1.5 per cent range.

Economists were surprised by the weaker inflation numbers, with some saying that government rebates, such as the SG50 transport vouchers, helped push down prices.

UOB economist Francis Tan noted that the negative inflation number last month was the worst fall since the last recession.

The weak inflation numbers could potentially mean a change in the central bank's monetary policy, said Mr Tan, noting that this is the last inflation report before the MAS issues its monetary policy statement next month .

He expects that the MAS could devalue the currency, which may result in the Singdollar falling to $1.43 to the United States dollar by the end of the year. The Singdollar was trading at $1.4207 to the greenback late last evening.

But ANZ economists Ng Weiwen and Glenn Maguire noted that a fall in the Singdollar could mean higher interest rates and result in households having to pay bigger loan repayment amounts.

This could in turn constrain the MAS from moving on monetary policy too quickly.

This article was first published on Sept 24, 2015.
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