The consumer price index (CPI) last month increased 5.5 per cent from a year earlier after rising 6.4 per cent in October, figures released by the Department of Statistics showed yesterday.
This is the lowest that the inflation rate has been in 11 months and was right in line with economists' expectations.
In month-on-month seasonally adjusted terms, last month's inflation rate declined 0.2 per cent compared with October's.
This is the first time it has been negative since September last year.
Economists say the recession's counter-inflationary effects are now starting to be felt more strongly in the economy.
They said this puts more pressure on the Monetary Authority of Singapore (MAS) to shift down its currency band - to weaken the Sing dollar - at its next policy meeting in April or even before.
Lower inflation gives the Government more room to stimulate the economy without fear of driving prices up.
One way is to weaken the currency to make exports more competitive without being too worried about pushing up prices via more expensive imports.
Another is to boost the economy through public spending. Such measures could prove vital as recession-hit Singapore faces a bleak outlook next year.
Overall, November's CPI increase was driven by higher costs of housing and food, the report said.
Housing costs grew 15.7 per cent on the back of more expensive accommodation and higher electricity tariffs, while food prices rose 6.9 per cent as rice and fresh vegetables, among other things, became more expensive.
But this was offset by lower transport and communication costs, which fell 1.9 per cent from last year and 1.7 per cent from October.
This was unsurprising as last month saw crude oil prices fall below US$50 (S$72.20) a barrel coming off a record high of US$147 in July. That meant lower petrol pump prices here. Another factor was a dramatic fall in certificate of entitlement (COE) prices to a low of $2 from $10,500.
Economists expect inflation to continue to moderate next year as commodity prices fall further and the global slowdown dampens worldwide demand.
Barclays Capital economist Leong Wai Ho said that at home, an expected 24.7 per cent fall in electricity tariffs from this quarter and lower property prices will also dampen inflation further.
Inflation is expected to fall to between 1 and 2 per cent next year, the Ministry of Trade and Industry said in a report last month. It averaged 6.7 per cent from January to November this year.
Citigroup economist Kit Wei Zheng said: 'The recession will...have a disinflationary, if not temporary deflationary impact, if past recessions are taken as a guide.'
He expects inflation next quarter to come in at around 3 per cent or less.
HSBC economist Prakriti Sofat said: 'Softening inflation against a backdrop of dismal exports and industrial production numbers increases the pressure on the MAS to shift down its currency band either at or before the next meeting in April.
'However, it is important to bear in mind that a currency adjustment would do little in the face of the complete collapse in external demand which is impacting the whole region.'
Full-year growth estimates have been revised down by the Government several times in the past four months as the financial and economic crisis took its toll on economies across the globe.
This has hit both Singapore's important external economy and domestically-oriented parts of the economy hard. Trade and Industry Minister Lim Hng Kiang said last week that Singapore's growth this year could now fall below the Government's prediction of 2.5 per cent.
The Ministry of Trade and Industry expects the Singapore economy next year to fall between a 1 per cent contraction and 2 per cent growth.
