AFTER a sustained rise in price levels last year, inflation is expected to drop steadily this year.

Falling food and oil prices around the world, as well as lower property values at home, will help ease pressure on the cost of living for Singaporeans, the Government said on Wednesday.

The consumer price index, which tracks the prices of a basket of commonly purchased goods, is forecast to hold steady or fall 1 per cent this year, said the Ministry of Trade and Industry (MTI). It had previously tipped a 1 to 2 per cent rise.

While the forecast implies some negative inflation towards the end of the year, this 'does not mean a deflation scenario', MTI Second Permanent Secretary Ravi Menon said.

'Rather, the situation is best described as one of disinflation, meaning a correction from the sharp spikes in global food and fuel prices in the first half of 2008.'

Global oil prices will average US$43 per barrel this year, compared to an average of US$100 per barrel last year, according to predictions by the US Energy Information Administration. MTI itself is assuming prices will hover at US$50 per barrel this year.

Food prices will also be 'subdued', it said. The global commodity food price index tracked by the International Monetary Fund has dropped 32 per cent from its peak in the middle of last year.

At the same time, domestic cost pressures, including property prices and rentals, are expected to "ease in line with the weakening economy".

In the third quarter last year, office rentals fell 0.8 per cent over the previous quarter, while shop rents declined 0.6 per cent. They are expected to show further decreases in the fourth quarter, when the official numbers are released this Friday.

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