Consumer prices up 0.4% in May, in line with expectations

Food inflation here slowed to 1.3 per cent as price rises for non-cooked food items moderated. The MAS and MTI expect imported inflation to "rise mildly" on the back of increases in global oil and food commodity prices.
Food inflation here slowed to 1.3 per cent as price rises for non-cooked food items moderated. The MAS and MTI expect imported inflation to "rise mildly" on the back of increases in global oil and food commodity prices.ST PHOTO: LIM YAOHUI

Faster price rises across major categories of CPI basket except food; more hikes expected

Singapore's headline inflation rose last month, with further increases expected in the coming months.

The consumer price index (CPI) was up 0.4 per cent year-on-year, in line with economists' expectations and picking up the pace from April's 0.1 per cent rise, the Department of Statistics said yesterday.

Core inflation, which strips out the cost of accommodation and private road transport, rose 1.5 per cent year-on-year, faster than April's 1.3 per cent rise.

The rise in both headline and core inflation was due largely to faster price increases across all the major categories of the CPI basket except food, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in a joint statement.

Private road transport costs edged up 0.1 per cent last month, reversing April's 0.8 per cent decline.

Services inflation rose 1.6 per cent, compared with 1.3 per cent in April.

Retail prices also saw a larger 1.3 per cent rise, compared with April's 0.9 per cent rise.

Food inflation, however, slowed to 1.3 per cent, down from 1.4 per cent in April, as price increases for non-cooked food items moderated.

The cost of accommodation continued to fall but at a slowing rate, with prices down 3.2 per cent, compared with April's 3.6 per cent decline.

The MAS and MTI expect imported inflation to "rise mildly" on the back of increases in global oil and food commodity prices.

Domestic inflation is also expected to rise alongside faster wage growth and a pick-up in domestic demand.

But the extent of consumer price increases will remain moderate, as retail rents have stayed relatively subdued and firms' pricing power may be constrained by competition, said the MAS and MTI.

Core inflation is expected to rise gradually over the course of the year, averaging in the upper half of the 1 to 2 per cent forecast range.

Headline inflation is similarly projected to come in within the upper half of its zero to 1 per cent forecast range.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect the central bank to maintain its current "slight appreciation bias" at its next policy meeting in October.

Similarly, ANZ economist for Asia Eugenia Fabon Victorino and senior rates strategist Jennifer Kusuma do not see upcoming changes to MAS policy, at least based on the current trend.

DBS senior economist Irvin Seah said May's numbers underline his belief that inflation has hit bottom and should rise gradually in the coming months.

Although some domestic factors will continue to weigh down inflation, external price pressure is brewing, he added.

"Imported inflationary pressure is rising, led mainly by the recent uptrend in oil prices and a moderately weaker currency.

"This externally driven price pressure should start filtering through to domestic prices from the second half (of the) year onwards," he said.

"Moreover, the labour market is recovering. Though we do not expect wage growth to pick up in a big way, judging from the risks to growth outlook, the worst is over for the employment cycle and this could also likely be reflected in the inflation dynamics."

A version of this article appeared in the print edition of The Straits Times on June 26, 2018, with the headline 'Consumer prices up 0.4% in May, in line with expectations'. Print Edition | Subscribe