Core inflation at lowest in over three years

It eases to 0.7% in September on lower retail prices, and cheaper electricity and gas

Cheaper electricity and gas and lower retail prices helped inflation fall to its lowest in over three years in September, according to data released yesterday.

Core inflation eased to 0.7 per cent, the lowest since March 2016, when it came in at 0.6 per cent. It was also slightly down from August's 0.8 per cent. Core inflation excludes the costs of accommodation and private road transport.

Headline or overall inflation last month remained the same at 0.5 per cent as accommodation costs fell by a smaller amount, while private road transport inflation slowed.

The figures were in line with predictions made by analysts in a Bloomberg poll, who flagged headline inflation at 0.5 per cent and core inflation at 0.8 per cent, the same as the inflation rates in August.

Analysts said they expect the inflation environment to remain benign.

United Overseas Bank economist Barnabas Gan said: "The sustained weakness in global energy prices and generally lower retail prices were the key drivers to a softer inflation environment.

"Lower retail and accommodation prices also added to deceleration in core inflation."

Dr Tan Khay Boon, a senior lecturer at SIM Global Education, said: "The subdued inflation in September reflected the weakness in local demand, triggered by poor sentiments about the economic performance that were caused mainly by the US-China trade dispute."

Services inflation eased to 1.4 per cent year on year last month, on the back of a fall in airfares and telecommunications service fees.

This more than offset larger increases in recreational and cultural service fees and holiday expenses, noted the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

Food inflation was 1.6 per cent last month, as a slower pace of increases in the cost of non-cooked food offset slightly costlier prepared meals. Electricity and gas prices fell by 8.3 per cent year on year last month compared with the 7.8 per cent decline in August, mainly due to the dampening effect of the nationwide launch of the Open Electricity Market.

Retail goods were cheaper as well, easing 0.8 per cent, reflecting smaller declines in the prices of clothing and footwear items, medical products and telecommunications equipment.

Private road transport inflation was 0.5 per cent last month, lower than the 0.6 per cent in August. This was due to a larger fall in petrol prices and a smaller increase in Electronic Road Pricing charges, which collectively outweighed a faster pace of increase in car values. Accommodation costs dipped 0.5 per cent, as rents declined more gradually.

The MAS slightly lowered the Singdollar appreciation rate earlier this month and also narrowed its inflation forecasts. It noted that core inflation had come in lower than anticipated in recent months and will remain subdued in the year ahead.

It forecasts core inflation to come in at the lower end of the 1 to 2 per cent range this year, and average 0.5 to 1.5 per cent next year. Headline inflation is projected to be around 0.5 per cent this year and average 0.5 to 1.5 per cent next year.

The MAS and MTI said yesterday that external sources of inflation are likely to remain benign in the months ahead amid weak demand and generally well-supplied food and oil markets. However, they noted that crude prices could be volatile in the near term, reflecting geopolitical risks.

"On the domestic front, labour market conditions are softening slightly. This would lower wage growth in 2019 and 2020, compared with last year," they said.

"At the same time, non-labour costs such as retail rents should stay subdued, and any cost pass-through to consumers would be constrained by the weaker economic environment."

A version of this article appeared in the print edition of The Straits Times on October 24, 2019, with the headline 'Core inflation at lowest in over three years'. Print Edition | Subscribe