Consumer price index dips but core inflation rises

Office workers at Raffles Place on June 16, 2014.
Office workers at Raffles Place on June 16, 2014. PHOTO: ST FILE

Singapore's latest official inflation figures present a mixed picture.

On the one hand, the negative headline inflation the Republic has been experiencing since last November is not letting up yet.

On the other hand, core inflation - seen as a better gauge of everyday spending - rose to a six-month high of 0.6 per cent last month as services and retail products became pricier.

The consumer price index, a measure of headline inflation, fell 0.6 per cent in September from the same month last year, marking the 11th straight month of decline and the longest stretch of negative inflation Singapore has experienced since the global financial crisis.

The latest bout of negative inflation is largely the result of cheaper oil, along with loan curbs that have dampened both the property and car markets.

Last month's fall was in line with economists' estimates, and follows a 0.8 per cent decline in August's consumer price index.

Private road transport costs slid 3.2 per cent in September over the same month a year earlier, extending the 2.9 per cent fall in August, owing to lower certificate of entitlement premiums and petrol pump prices.

Accommodation costs fell 2.9 per cent, similar to the decline in the previous month, reflecting the soft housing rental market.

The Monetary Authority of Singapore's (MAS) core inflation measure, which strips out accommodation and private road transport costs to better gauge everyday expenses, rose to 0.6 per cent last month, its highest level since March.

This mainly reflected a pickup in the prices of retail items and services, particularly as the impact of subsidies implemented last year faded, said a joint MAS and Ministry of Trade and Industry (MTI) statement.

Enhanced medical subsidies for lower- to middle- income Singaporeans, as well as subsidies under the Pioneer Generation Package, had previously kept a tighter lid on healthcare inflation year on year.

However, since these programmes were implemented in September last year, the dampening effect on inflation lasted only till August.

Economists say core inflation is set to remain low over the rest of the year - HSBC economist Joseph Incalcaterra noted that electricity tariffs were reduced on Oct 1. But the number will start creeping up next year, partly due to base effects.

This is likely to be slightly offset by the move to reduce public transport fares from December.

If inflation does pick up next year, however, it will not be a sign of stronger demand for goods and services, noted Bank of America Merrill Lynch economist Chua Hak Bin.

While the economy narrowly escaped a technical recession in the third quarter, "(it) is not yet out of the woods", said Dr Chua. He expects MTI to lower its growth forecast for this year from the current 2 to 2.5 per cent range, to a figure below 2 per cent.

Growth is likely to remain subdued next year given the weak global outlook and tight foreign worker policy, added Dr Chua. He has downgraded his growth forecasts for both this year and next year to reflect "a reality check on the external environment and demand".

A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline 'Consumer price index dips but core inflation rises'. Print Edition | Subscribe