Consumer prices fall further while core inflation hits 5-year low
TODAY file photo
SINGAPORE — Consumer prices in Singapore fell for the seventh straight month in May while core inflation hit a five-year low, raising concerns among economists about weakening demand in the domestic market.
The consumer price index (CPI) for all items was down 0.4 per cent last month from the same month a year earlier, reflecting a weak housing rental market and a moderation in services and food price inflation, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said today (June 23). However, the decline was less steep than the 0.5 per cent drop in April and a similar pace forecasted by economists in a Reuters poll, as private road transport costs rose.
Core inflation sank to its lowest since January 2010, mainly due to the softer food inflation and the impact of budgetary measures on service costs, such as the cut in foreign domestic worker levy and the waiver of national examination fees. The indicator, which excludes private road transport and accommodation, slowed to a 0.1 per cent rise last month from the 0.4 per cent in the preceding month.
Services inflation eased to 0.5 per cent from 1.1 per cent a month earlier, while food inflation moderated to 1.8 per cent from 2.1 per cent in April, the MAS and MTI said.
“The real concern is the persistent decline in core inflation … It is purportedly more stable and a better reflection of the underlying cost of living in Singapore. The decline in core inflation could suggest weakening domestic demand, especially since the depreciating Singapore dollar should in principle, be stoking imported inflationary pressure,” said DBS economist Irvin Seah.
Despite the weak set of data, the MAS and MTI maintained their forecasts for headline inflation at between minus 0.5 per cent and 0.5 per cent for this year, and core inflation at between 0.5 per cent and 1.5 per cent. Core inflation could remain subdued at around the current rate in the next few months, they added.
“External sources of inflation should remain generally benign, given ample supply buffers in the major commodity markets. Notably, global oil prices are likely to be much lower for the whole of 2015 compared to the US$93 a barrel average recorded last year. Although underlying cost pressures stemming from the tight labour market remain, the pass-through to consumer prices is expected to be tempered in the near term by the moderate growth environment,” they said.
While the latest set of weak numbers may give the MAS more room to ease policy, the central bank is unlikely to do so for now, economists said.
“Downward pressure on both headline and core inflation over the past seven months was due mainly to administrative measures from the Government,” said UOB economist Francis Tan, who noted that the drivers of deflation are different from those in an economic crisis where falling prices are due to a contraction in aggregate demand and a spike in the unemployment rate.
“As such, our opinion remains that the MAS will likely maintain the current monetary stance of a modest and gradual appreciation of the Singapore dollar nominal effective exchange rate unchanged at our estimated 1 per cent per annum rate in the next policy meeting in October, and there should be no pressure in further easing of the appreciation rate,” he added.
Mr Seah, however, said the deciding factor is whether the core inflation reading turns negative.
“If core inflation dips below zero and stays there, full-year core inflation could fall short of the target range of the 0.5 to 1.5 per cent range set by the MAS. And that would place pressure on the authorities to either adjust their core inflation target or modify their policy stance.”
