May marks longest run of negative inflation in six years

A couple walk past a Rimowa store on Orchard Road in Singapore, on June 21, 2015. Consumer prices prices declined for a sixth straight month in April and employment contracted last quarter for the first time since 2009. PHOTO: BLOOMBERG
A couple walk past a Rimowa store on Orchard Road in Singapore, on June 21, 2015. Consumer prices prices declined for a sixth straight month in April and employment contracted last quarter for the first time since 2009. PHOTO: BLOOMBERG

INFLATION came in below zero for the seventh consecutive month in May - the longest run of negative inflation in six years.

While the headline number did not surprise economists, they were caught off-guard by lower-than-expected core inflation, which is seen as a better gauge of everyday expenses.

The consumer price index, a measure of headline inflation, fell 0.4 per cent last month amid lower oil prices, a soft housing rental market and Budget measures kicking in. This followed a 0.5 per cent decline in April.

The last time Singapore experienced a stretch of negative inflation was in 2009 amid the global financial crisis. Economists do not regard this run of falling prices as "deflation", a term reserved for a more sustained and entrenched economic problem with often dire results.

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

Private road transport costs, which include car and petrol prices, ticked up 1 per cent last month after falling 2.1 per cent in April. This was because of higher certificate of entitlement premiums and a smaller year- on-year decline in pump prices.

Accommodation costs fell by 2.5 per cent last month, similar to the previous month, reflecting the soft housing rental market.

Food and services inflation also moderated last month.

Food inflation eased to 1.8 per cent from April's 2.1 per cent, as a slower rise in non-cooked food prices more than offset costlier restaurant meals.

Services inflation fell to 0.5 per cent from 1.1 per cent a month earlier, largely because Budget measures took effect. These include the reduction in the concessionary foreign domestic worker levies and the waiver of national examination fees.

These factors combined to drag down the Monetary Authority of Singapore's (MAS) core inflation measure, which strips out accommodation and private road transport costs to better gauge everyday expenses. It came in at 0.1 per cent last month, down from April's 0.4 per cent.

MAS expects core inflation to be between 0.5 and 1.5 per cent for the full year. Some economists say that if core inflation remains close to zero or sinks into negative territory in the coming months, it might fall short of the MAS target.

However, HSBC economist Joseph Incalcaterra said last month's low core inflation reading "should prove ephemeral", given that the labour market remains tight and regional food prices may rise in the second half of the year owing to the El Nino weather phenomenon.

chiaym@sph.com.sg

A version of this article appeared in the print edition of The Straits Times on June 24, 2015, with the headline 'May marks longest run of negative inflation in six years'. Print Edition | Subscribe