Core consumer prices slip but improvement from August figures

Core inflation comes in at minus 0.1%; overall inflation flat at 0%

Core consumer prices fell marginally last month, but the decline is easing, according to data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

Core inflation, which excludes accommodation and private road transport costs, came in at minus 0.1 per cent last month, up from negative 0.3 per cent the previous month, due mainly to smaller drops in the costs of services and electricity and gas.

It was the eighth straight month of core consumer prices falling below those of the same period a year ago, but an improvement from August's inflation figures.

Overall inflation was flat at 0 per cent, up from minus 0.4 per cent in August, largely due to a more gradual decrease in private transport costs.

MAS last week upgraded its 2020 forecast range for both core and overall inflation to minus 0.5 per cent to 0 per cent. Its previous forecasts for both were minus 1 per cent to 0 per cent.

It forecast core inflation to turn positive next year, at 0 per cent to 1 per cent, while overall inflation is expected to be between minus 0.5 per cent and 0.5 per cent.

The inflation data showed that private transport costs registered a much smaller decline at a year-on-year pace of 0.1 per cent last month, compared with the 2.3 per cent drop in August, on a larger increase in car prices.

The cost of electricity and gas also fell at a slower rate last month, at minus 14.2 per cent compared with minus 14.6 per cent in August, as the take-up of new subscriptions under the Open Electricity Market eased.

The cost of retail and other goods fell at the same rate of minus 1.3 per cent last month. A larger decline in the price of clothing and footwear and a fall in the cost of telecommunication equipment were offset by a larger increase in the cost of household durables and a smaller decline in the price of personal care products.

Food inflation was also unchanged from August at 1.8 per cent last month, as was accommodation inflation at 0.4 per cent as housing rents saw a similar pace of increase as in August.

Service costs fell at a slower pace of 0.1 per cent last month compared with the 0.5 per cent drop the previous month, due to a steeper increase in telecommunication services fees and a smaller drop in tuition and other fees.


MAS and MTI noted that in the quarters ahead, external inflation is likely to remain low amid weak demand conditions in key commodity markets and continued negative output gaps in Singapore's major trading partners.

"On the domestic front, cost pressures are expected to stay subdued. The accumulated slack in the labour market will weigh on wages. Nevertheless, core inflation is forecast to turn mildly positive in 2021, as the disinflationary effects of government subsidies introduced this year fade and demand for some domestic services gradually picks up," said MAS and MTI.

They added that accommodation costs are expected to fall, partly due to the decline in foreign employment, while private transport costs should rise modestly amid an anticipated reduction in the supply of certificates of entitlement.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said inflation might turn mildly positive before the end of the year, which is earlier than expected, but it will likely remain muted next year. "Job losses and wage cuts will cap domestic price pressures. External inflation will also stay soft due to weak commodity prices."

Likewise, Barclays Bank economist Brian Tan expects core inflation this month to be positive as Singapore's economy continues its muted recovery after the easing of social distancing measures.

United Overseas Bank economist Barnabas Gan said that while consumer prices may stay low for the rest of this year, inflation from food, communications and vehicle costs could cushion the deflationary effects from other clusters in the coming months.

He added: "Low oil prices amid an absent tourism-driven demand will likely be headwind drivers against any significant uptick in inflationary pressures."

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A version of this article appeared in the print edition of The Straits Times on October 24, 2020, with the headline Core consumer prices slip but improvement from August figures. Subscribe