Negative inflation at longest stretch of 17 months

Consumer prices fell again in March - the 17th straight month of decline - the longest stretch here since 1977.

The consumer price index (CPI) fell 1 per cent last month from the same period a year ago, after declining 0.8 per cent in February, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry yesterday.

The headline number was in line with the median estimate for a 1 per cent fall tipped by private-sector economists in a Bloomberg poll.

Core inflation edged up to 0.6 per cent in March from 0.5 per cent in February, also in line with forecasts.

This was driven by a rise in food inflation to 2.2 per cent, from 2 per cent in February.

The core inflation measure excludes accommodation and private road transport costs - to better gauge everyday expenses.

Economists said that the factors behind the overall negative inflation number include the slide in oil-related items such as petrol and electricity tariffs, falling car prices, as well as the correction in property prices.

Singapore is not experiencing deflation with core inflation ticking up.

In fact, price declines have become less pervasive over the past few months, with more items in the CPI basket experiencing price increases rather than falls.

"Keep in mind that we are only seeing falling prices for the headline CPI, while core prices continue to increase," said HSBC economist Joseph Incalcaterra.

This is in contrast to Singapore's previous prolonged price declines that accompanied the 2008, 2001 and 1998 recessions, when prices were dragged down by a broad fall in demand.

Private road transport costs fell at a faster pace of 5.9 per cent in March from the same period a year ago. In February, private road transport costs had fallen 3.9 per cent.

Accommodation costs fell 3.2 per cent, the same as February.

The MAS noted that a large supply of car certificates of entitlement and residential units will come on-stream this year, reiterating that it expects headline inflation to remain negative throughout the year.

Core inflation will come in within the lower half of the 0.5 per cent to 1.5 per cent forecast range this year, said the MAS, maintaining the stance it has taken since April 14.

During a scheduled policy review that day, the MAS surprised the market by taking the Singapore dollar off the path of modest and gradual appreciation, citing a weaker inflation outlook.

Yesterday, the MAS also highlighted the first-quarter jobs data, which will be out on Thursday. "The labour market is expected to see slightly reduced tightness, with wage growth projected to slow further over the course of 2016," the MAS said.

This means resident unemployment could pick up, said Citi economist Kit Wei Zheng.

This article was first published on April 26, 2016.
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