Prices fall for fifth straight month as demand stays weak

CONSUMER prices fell yet again last month - the fifth consecutive month of decline and the longest stretch of negative inflation that Singapore has experienced since 2009.

Six years back, the culprit was the turmoil from the global financial crisis. UOB economist Francis Tan noted yesterday that the blame this time lies with lower global oil prices and loan curbs that have dampened the property and car markets.

These trends persisted last month, when consumer prices fell 0.3 per cent from levels seen in the same month a year ago.

Accommodation costs dropped 2.2 per cent last month, extending the 2.1 per cent fall in February, as the housing rental market continued to soften.

Private road transport costs - which include car and petrol prices - fell by a more moderate 4 per cent than the 5.8 per cent decline posted in February. The reason was a hike in petrol duties that went into effect on Feb 23, which had an impact on the data for last month.

For services, inflation came in at 1.5 per cent last month, unchanged from February, as higher telco service fees were offset by cheaper airfares and holiday travel packages, as well as a smaller pickup in hospitalisation charges. Also, food inflation was more moderate because of a slower rise in non-cooked food prices as demand eased after Chinese New Year.

Together, these factors helped bring down core inflation.

The core inflation measure used by the Monetary Authority of Singapore (MAS), which strips out accommodation and private road transport costs to better gauge everyday expenses, came in at 1 per cent last month, down from 1.3 per cent in February.

In a joint statement yesterday, MAS and the Ministry of Trade and Industry said global oil prices for the full year are likely to be far lower than last year's average of US$93 a barrel.

Businesses are still being squeezed by higher wage costs, but moderate economic growth is limiting the extent to which these expenses can be passed on to consumers.

That suggests inflation will ease further before rising towards the year end and into next year, "as global oil prices pick up and the effects of enhanced medical subsidies fade", the statement said. Official forecasts indicate inflation should be between negative 0.5 per cent and 0.5 per cent this year.

HSBC economist Joseph Incalcaterra said underlying inflationary pressures from the economy are subsiding amid weaker domestic growth this year.

He added that consumption is likely to slow further in the coming months as variable-rate mortgages are reset to reflect the rise in short-term interest rates since the start of this year.

Even though the Singapore interbank offered rate and swap offer rate have both eased significantly over the past few weeks, they are expected to trend higher throughout this year, given expectations that the United States Federal Reserve will raise rates in September, he noted.

This article was first published on April 24, 2015.
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