Long spell of negative inflation close to an end

The gradual uptrend in the transport CPI is attributed to the recovery in oil prices, easing of car loan financing regulations by MAS and the reduction in the certificate of entitlement quota by LTA.
The gradual uptrend in the transport CPI is attributed to the recovery in oil prices, easing of car loan financing regulations by MAS and the reduction in the certificate of entitlement quota by LTA.ST PHOTO: KUA CHEE SIONG

CPI posts smallest falls since Dec 2014, with Sept consumer prices down 0.2% year on year

Singapore's longest spell of negative inflation in decades, starting almost two years ago, may be nearing an end, going by the latest data.

Inflation is now expected to move back into positive territory in the months ahead. The CPI or consumer price index - the main measure of inflation - last month posted its smallest decline since December 2014.

Overall consumer prices fell 0.2 per cent last month from September last year, according to data from the Statistics Department yesterday.

This is the 23rd straight month of sliding consumer prices, marking the longest stretch of negative inflation seen here since 1977.

Last month's dip in overall consumer prices was in line with economists' forecast and slightly more modest than the 0.3 per cent year-on-year decline in August.

  • PRIVATE ROAD TRANSPORT COSTS

  •  0.4%

    September, year on year

     1%

    August, year on year

The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) maintained the outlook that headline inflation "has troughed and is projected to pick up to 0.5-1.5 per cent next year, from around -0.5 per cent in 2016".

The downward pressure on prices eased last month, owing to a smaller dip in private road transport costs and, to a lesser extent, higher food prices.

DBS Bank senior economist Irvin Seah said: "Impact of the low energy prices dissipated as oil prices recovered. Easing of car loan financing regulations by the MAS and the reduction in the COE quota by the Land Transport Authority have both contributed to the gradual uptrend in the transport CPI."

Private road transport costs slid just 0.4 per cent year on year last month, in contrast to the 1 per cent drop in August mainly because of the smaller drop in petrol prices.

The cost of fuel and utilities fell 8.9 per cent year on year.

Services inflation moderated to 1.5 per cent last month from 1.7 per cent a month earlier, reflecting a fall in public road transport cost and a smaller increase in telecommunication services fees.

Accommodation costs fell 3.7 per cent, extending August's 3.6 per cent drop, amid continued softness in the housing rental market.

"Near-term pressures on the housing market are likely to persist with the intact cooling measures and more subdued labour market conditions," noted Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

However, prices elsewhere in the economy kept edging upwards.

Food prices rose 2.2 per cent last month year on year, while the cost of household durables and services also increased 3.1 per cent. Economists expect overall consumer prices to turn positive in the coming months.

"We are starting to see some uptick in prices on commodities, so it looks like the worst of the deflation is behind us," noted CIMB Private Banking economist Song Seng Wun.

MAS and MTI said core inflation is expected to average around 1 per cent this year before rising to 1 to 2 per cent next year.

The disinflationary effects of Budget measures will also ease as time goes by. These measures include the abolition of national examination fees for Singaporeans, the reduction in the concessionary foreign domestic worker levy, and government subsidies and support for MediShield Life premiums.

However, MAS and MTI noted that the increase in core inflation will be gradual.

A version of this article appeared in the print edition of The Straits Times on October 25, 2016, with the headline 'Long spell of negative inflation close to an end'. Print Edition | Subscribe