First positive inflation in 24 months, it's likely to continue

Inflation turned positive last month for the first time in over two years - a potent sign that prices are on track to climb at a faster pace this year on the back of recovering oil prices.

The consumer price index - the main measure of inflation - inched up 0.2 per cent last month compared with the same month a year earlier.

Though a tiny increase, this followed 24 straight months of sliding readings from November 2014 to October last year, and a reading of zero per cent in November.

Lower oil and car prices and falling accommodation costs - due to the soft property market - were the main drivers for the long bout of negative inflation.

However, prices of necessities such as education, food and healthcare continued to inch upwards in this period, which is why this run of falling prices is not regarded as "deflation".

Inflation is likely to continue rising on the back of higher global oil prices this year, the Trade and Industry Ministry and Monetary Authority of Singapore said yesterday.

Oil prices plunged in the second half of 2014 from above US$100 (S$142) a barrel to below US$50, due to oversupply, but have since risen to about US$55 a barrel.

This has already started having an impact. Last month's inflation uptick was led by higher private road transport costs, which increased 1.7 per cent due to costlier petrol and higher carpark fees.

Other consumer prices also rose, with services inflation edging up to 1.6 per cent, mainly due to a faster pace of increase in holiday expenses.

Food inflation was 2 per cent in December, while retail goods inflation eased to zero in December from 0.2 per cent in November.

Core inflation, which strips out accommodation and private road transport costs to better gauge everyday expenses, was 1.2 per cent in December, slightly lower than November's 1.3 per cent.

Core inflation for 2016 rose to 0.9 per cent from 0.5 per cent in 2015. Overall inflation came in at negative 0.5 per cent for the second consecutive year.

Low-income households benefited most from lower inflation

Low-income households benefited most from lower inflation in the second half of last year, according to data out yesterday.

The middle 60 per cent also experienced lower inflation but to a smaller extent, Statistics Department data showed.

The consumer price index - the main measure of inflation - for general households declined 0.2 per cent over July to December compared with the corresponding period a year earlier.

The index for the lowest 20 per cent fell 0.8 per cent, the largest decline across income groups.This was due to a fall in accommodation costs and electricity tariffs, which had a more significant impact as these items accounted for a higher share of this group's total expenditure.

The lowest 20 per cent income group also experienced a smaller increase in the cost of healthcare services compared with other income groups, taking into account government subsidies and support for MediShield Life premiums.

Those in the middle 60 per cent experienced a smaller 0.3 per cent fall in their consumer price index in the second half of 2016 compared with the same period a year earlier.

Households in the highest 20 per cent income group saw no change in their index as the impact of lower accommodation costs and electricity tariffs was offset by higher food prices, tuition fees and road tax.

Inflation for general households fell by 0.5 per cent for the whole of 2016. Households in the lowest 20 per cent by income experienced a 1.1 per cent decline in their consumer price index, while the middle 60 per cent and highest 20 per cent saw a decline of 0.5 per cent each.

Lower-income households have benefitted most from government transfers and subsidies, said OCBC economist Selena Ling. While inflation is expected to inch up this year due to higher oil prices, the impact on different income groups will depend on government measures announced in next month's Budget, she added.

"Hopefully, there will be some mitigating measures to provide a relief valve for cost pressures - eg. rental rebates for hawker centres and HDB heartland shops to keep costs down."

This article was first published on Jan 23, 2017.
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