Lower oil prices may ease Singapore's inflation

Lower oil prices may ease Singapore's inflation

SINGAPORE - The plunge in oil prices is roiling global markets but Singapore's economy may end up reaping some benefits.

Economists say a sustained lower oil price would help bring down Singapore's inflation this year and could even give a small lift to economic growth.

Crude prices have dropped nearly 10 per cent this month amid disappointing economic data from China and the United States, the world's biggest oil consumers.

On Tuesday, it slipped below US$100 (S$123.43) a barrel for the first time in 10 months, and fell further on Wednesday to below US$99 a barrel.

Crude staying under US$100 a barrel for the rest of the year could shave up to 0.5 percentage point off inflation in Singapore, which is a net importer of oil, says Credit Suisse economist Santitarn Sathirathai.

OCBC economist Selena Ling agrees, noting that a sustained drop in prices will lead to cheaper electricity, which reduces fuel and utility bills, as well as cheaper petroleum and transport costs.

The indirect impact could be even larger if firms pass on their savings on energy to consumers in the form of cheaper food and other services, said Citi economist Kit Wei Zheng.

However, he cautioned that any impact may come with a lag - electricity tariffs are adjusted only quarterly, for example - or could be blunted by other factors like a stronger Singapore dollar.

To the extent that consumers and companies do save on oil-related costs, they will have more to spend, which may in turn boost economic growth.

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