Consumer prices down for the 9th straight month in July
TODAY file photo
SINGAPORE – Consumer prices in Singapore fell for the ninth straight month in July, largely due to lower Certificate of Entitlement (COE) prices, but economists said that growing concerns over the worsening external outlook has raised the possibility of monetary policy easing by the central bank in October.
All-items Consumer Price Index (CPI) fell by 0.4 per cent last month compared to July a year ago, deepening from the 0.3 per cent decline in June, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said today (Aug 24). Economists in a Reuters poll had expected a 0.2 per cent decline for July.
Headline inflation fell mainly due to lower private road transport costs which decreased by 0.1 per cent last month after rising 1.2 per cent in June, mostly because of a decline in COE prices. Accommodation costs fell for the twelfth consecutive month, declining by 2.8 per cent, following the 2.6 per cent drop in the previous month, as the rental market continued to soften.
Core inflation, which excludes the costs of accommodation and private road transport, rose 0.4 per cent last month, higher than the 0.2 per cent increase in June. This was largely due to the more moderate decline in electricity tariffs and higher services inflation, the MAS and MTI said.
“Last month’s fall in consumer prices was the longest stretch of deflation since the last deflationary period back in June to December 2009, when consumer prices in Singapore fell from both the lack of consumer demand as well as corporate and business price-cutting in the aftermath of the global financial crisis,” said UOB economist Francis Tan.
However, Singapore is not in a recession compared to the situation in 2009, Mr Tan added. “There is no unemployment situation and the downward inflation is due to the Government’s regulatory moves on cars and housing.”
Still, with the prolonged slump in commodities and the steep selloff in the financial markets, deflationary pressures will weigh heavier, analysts said.
“We are concerned over the recent development in the global growth/inflation landscape, especially the resurgence of the downward pressure on oil prices and the volatility in equity markets… Moreover, the Singapore dollar has been appreciating against the currencies of our key larger importing countries, such as Malaysian ringgit, Indonesian rupiah, Thailand baht, in the second half of the year which may result in lower imported inflation, further pushing future inflation lower,” said Mr Tan.
“The downside risk on inflation is still building up. Resurgence of global market risks have dampened oil prices and sent the equity market into a tailspin. This will exacerbate existing global deflationary pressures, which will weigh down Singapore’s domestic prices,” said DBS Economist Irvin Seah.
Due to the uncertain global situation, economists cite possible monetary policy adjustments at the next MAS meeting in October.
“Our base case is for the MAS to maintain its current monetary stance of a modest and gradual appreciation of the S$NEER (Singapore dollar nominal effective exchange rate) unchanged at our estimated 1 per cent per annum rate in the next policy meeting in October. But if the downside risk on expected core inflation increases, some policy actions, such as a lowering of the S$NEER midpoint, could be expected,” said Mr Tan.
Early this month, the MAS said that another policy revision was unlikely after the Government narrowed the gross domestic product growth forecast for this year to between 2 and 2.5 per cent, from between 2 and 4 per cent. The central bank, which uses the exchange rate as its main monetary policy tool, resisted pressure in April to add to an unexpected January easing.
“This narrowed GDP growth forecast lies within our planning parameters of the current exchange-rate policy,” MAS deputy managing director Jacqueline Loh said. “The current stance of a modest and gradual appreciation of the Singapore dollar remains appropriate to ensure medium-term price stability.”
MAS and MTI has maintained their headline and core inflation target range at minus 0.5 per cent to 0.5 per cent and 0.5 per cent to 1.5 per cent, respectively.
