0.5% drop in index marks 4th consecutive monthly fall and sets pattern of disinflation
By
Fiona Chan
Food prices fell due to cheaper seafood, fresh vegetables, pork and cooked food, while housing costs dropped largely because of lower gas tariffs. As the prices of travel and holidays eased, recreation costs also dipped, said the Department of Statistics (DOS), which publishes the inflation data. -- ST PHOTO: CAROLINE CHIA
INFLATION continued to ease last month, dropping by more than economists had expected, as falling food and oil prices pushed costs downwards.
The consumer price index fell by 0.5 per cent over January, marking the fourth consecutive monthly decline and establishing a clear pattern of disinflation, or decreasing inflation.
On a seasonally adjusted basis, the index declined 0.8 per cent - the largest monthly fall since February 1982, according to HSBC economist Robert Prior-Wandesforde.
Food prices fell due to cheaper seafood, fresh vegetables, pork and cooked food, while housing costs dropped largely because of lower gas tariffs. As the prices of travel and holidays eased, recreation costs also dipped, said the Department of Statistics (DOS), which publishes the inflation data.
But economists were careful to distinguish the current trend of disinflation from the more worrying pattern of deflation. They said the threat of deflation, in which prices and wages spiral persistently downwards in a destructive cycle, is still some way off - assuming it materialises at all.
On a year-on-year basis, consumer prices remained 1.9 per cent higher last month than a year ago, due mainly to higher costs of housing, food, health care and recreation.
Housing prices were still 6.6 per cent more than the previous year, while food costs were 4.3 per cent higher.
As disinflation gathers pace, however, year-on- year inflation is expected to turn negative in a few months, projected Citigroup economist Kit Wei Zheng. But he said this would largely be due to the less worrying 'supply-side deflation', which means prices are falling because of drops in the prices of raw goods such as oil and food.
On the other hand, if deflation starts to come from the 'demand side' - people willing to pay less for things because their wages are falling and the economy is doing poorly - that would be a bigger source of concern, he said.
Most economists believe inflation will be negative for the full year, due to falling commodity prices in the recession and partly because of the high base last year. This gives more room for the Monetary Authority of Singapore to allow the Singapore dollar to depreciate further at its regular policy meeting next month, they said.
Read the full story in today's edition of The Straits Times.
