Consumer prices rise 0.6%, below economist expectations

The consumer price index (CPI) edged up 0.6 per cent last month compared with July last year.
The consumer price index (CPI) edged up 0.6 per cent last month compared with July last year. PHOTO: ST FILE

Inflation inched up last month on the back of higher water tariffs and pricier retail items like clothing and household goods.

But the tepid job market and subdued economic environment are expected to keep prices in check for the rest of the year.

The consumer price index (CPI) - the main measure of inflation - edged up 0.6 per cent last month compared with July last year, according to Department of Statistics data released yesterday. This was up from 0.5 per cent in June and slightly below economist expectations of 0.7 per cent.

Inflation last month was driven primarily by higher retail and water prices, said a joint statement from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI).

Collectively, retail and water prices rose 1.2 per cent, reversing June's 0.2 per cent decline.

Water tariffs were raised by 15 per cent from July 1 as part of a phased 30 per cent hike over two years announced in this year's Budget. The Government's U-Save rebates, which have been increased and partially offset the impact of higher water prices, were not taken into account in the consumer price index.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said higher water tariffs are not having a bigger impact on inflation because they account for a small 0.54 per cent weight in the CPI basket.

"There may, however, be second-round effects in August and September," they noted.

While water prices rose, the cost of electricity and gas moderated to increase 7.9 per cent last month, from a 19.1 per cent hike in June, on the back of lower oil prices.

Private road transport inflation came in higher at 3.5 per cent last month, compared with 3 per cent in June, mainly due to a smaller decline in car prices.

Services inflation rose slightly to 1.4 per cent last month from 1.3 per cent in the previous month, largely reflecting an increase in telecommunication services fees following price declines in June.

Core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - came in at 1.6 per cent last month, compared with 1.5 per cent in June.

Oil prices have risen from their trough and are likely to average higher this year, while administrative price adjustments such as the hike in carpark charges, and service and conservancy charges will also contribute to "a temporary increase in inflation this year", the MAS and MTI said.

But the lacklustre labour market and subdued economic environment will limit the extent to which businesses pass on higher costs to consumers, they added in their statement.

CIMB Private Bank economist Song Seng Wun said the rise of the sharing economy - including ride-sharing services like Uber and Grab - as well as e-commerce could have a dampening effect on consumer prices.

This will in turn further contain price increases across the economy, he noted, adding: "These services have helped to bring down prices a bit... Elsewhere we are also barely seeing the needle move. Overall inflation is still relatively mild."

A version of this article appeared in the print edition of The Straits Times on August 24, 2017, with the headline 'Consumer price index for July rises 0.6%'. Print Edition | Subscribe