Consumer price index positive for first time in a year

Cost pressures are expected to stay low on the domestic front, as wage growth and commercial rents are likely to remain subdued, according to a Monetary Authority of Singapore and Ministry of Trade and Industry report. Core inflation is forecast to a
Cost pressures are expected to stay low on the domestic front, as wage growth and commercial rents are likely to remain subdued, according to a Monetary Authority of Singapore and Ministry of Trade and Industry report. Core inflation is forecast to average from 0 per cent to 1 per cent this year, and overall inflation is projected to be between minus 0.5 per cent and 0.5 per cent. ST PHOTO: LIM YAOHUI

Singapore's overall inflation turned positive for the first time in nearly a year, owing to a smaller decline in the cost of services as well as higher car prices and housing rents.

All-items inflation came in at 0.2 per cent last month on a year-on-year basis, up from 0 per cent the month before. This is the first time overall inflation has risen above zero since last February.

Meanwhile, core inflation, which excludes accommodation and private road transport costs, edged up to minus 0.2 per cent last month, from minus 0.3 per cent last December, according to a report by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

The decline in core consumer prices eased last month on a smaller fall in services costs.

Core inflation, which better captures the underlying trend in consumer prices, is the measure that MAS monitors most closely in its monetary policy review.

Private transport costs registered a steeper increase of 1.9 per cent last month, up from the 1.2 per cent rise last December, due to a larger increase in car prices and a more modest fall in petrol prices.

Likewise, accommodation inflation rose to 0.5 per cent last month, up from 0.3 per cent the previous month, as housing rents increased at a faster rate with the expiry of rental rebates given to households living in public rental flats.

Meanwhile, services costs fell at a slower pace of 0.3 per cent last month, easing from the 0.8 per cent decline last December. They were buoyed by higher tuition and other fees and point-to-point transport services costs.

Electricity and gas costs plunged more sharply by 9.7 per cent, compared with the 6.7 per cent drop last December, due to a steeper fall in electricity prices as the electricity tariff was revised downwards.

MAS and MTI reiterated that in the quarters ahead, external inflation is likely to pick up amid the recovery in global oil prices.

Brent crude oil prices have risen further since the fourth quarter of last year, supported by output cuts among members of Opec+ (the Organisation of Petroleum Exporting Countries, along with Russia and other nations).


"At the same time, continuing negative output gaps in Singapore's major trading partners should cap the extent of the increase in underlying global inflation," said MAS and MTI.

"On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued."

Core inflation is forecast to turn mildly positive this year, as the projected rise in oil prices from a year ago leads to a pickup in electricity and gas tariffs, and the disinflationary effects of government subsidies introduced last year fade.

Some components of domestic services inflation could also gradually increase in line with economic recovery, said MAS and MTI.

"Meanwhile, accommodation costs have stabilised, with housing rents in some areas registering increases. In addition, private transport costs have risen on the back of firm demand for cars and higher petrol costs," they said.

Maintaining their inflation forecasts for this year, MAS and MTI said core inflation is expected to average from 0 per cent to 1 per cent this year, while overall inflation is projected to be between minus 0.5 per cent and 0.5 per cent, according to official forecasts.

Both core and overall inflation averaged minus 0.2 per cent last year.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, expects that there will be "further upside pressure" for overall inflation for the rest of this year.

She said, however, that domestic price pressures are likely to stay muted despite the gradual economic recovery. This comes amid the soft labour market and commercial property market conditions, with the retail sector still subdued and many workers working from home.

UOB economist Barnabas Gan said the rebound in commodity prices, including Brent crude oil prices, could add to rising inflation risk.

"Still, the uncertainties surrounding Covid-19 and the negative impact it has on economic growth could mitigate price pressures," he said.

"Renewed Covid-19 infections across Singapore's key trading partners may continue to cap import price pressures and inject headwinds to overall external inflation."

UOB expects both headline and core inflation to come in at 0.5 per cent this year.

A version of this article appeared in the print edition of The Straits Times on February 24, 2021, with the headline 'Consumer price index positive for first time in a year'. Subscribe