Core inflation positive for first time in a year
It rose to 0.2% last month on hike in costs of food and services; overall inflation edged up to 0.7%
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Food inflation edged up to 1.6 per cent last month, as prices of non-cooked food saw a steeper increase. The return of positive year-on-year inflation also suggests the reintroduction of higher prices in Singapore's basket of goods and services that may affect the outlay of most Singapore households, says UOB economist Barnabas Gan.
ST PHOTO: KUA CHEE SIONG
Singapore's core inflation turned positive for the first time in a year as the costs of food and services rose.
Core inflation, which excludes accommodation and private road transport costs, rose to 0.2 per cent last month on a year-on-year basis, a leap from the minus 0.2 per cent in January, according to data out yesterday.
Overall inflation also picked up to 0.7 per cent last month, from 0.2 per cent in January, driven by higher private transport inflation.
OCBC Bank head of treasury research and strategy Selena Ling said the faster uptick in inflation reflects the stronger recovery story.
But UOB economist Barnabas Gan noted that the return of positive year-on-year inflation also suggests the reintroduction of higher prices in Singapore's basket of goods and services that may affect the day-to-day outlay of most Singapore households.
The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) noted 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 Opec+ members.
"However, continuing negative output gaps in Singapore's major trading partners should cap the extent of the increase in underlying global inflation," they said in a statement.
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 be mildly positive this year, as higher oil prices lead to a pickup in electricity and gas tariffs, and the disinflationary effects of government subsidies introduced in 2020 fade," they said.
Private transport costs rose to 4.2 per cent last month, up from 1.9 per cent the month before, due to a stronger pickup in car prices and a smaller decline in petrol prices.
Costs of services also increased, reaching 0.5 per cent and reversing the decline of 0.3 per cent in January, on the back of higher inflation of tuition and other fees.
MTI and MAS noted that the Government had introduced subsidies for the treatment of respiratory illnesses at public health preparedness clinics and polyclinics from Feb 18 last year, as part of Covid-19 response measures.
"These subsidies exerted a smaller downward drag on the year-on-year inflation of outpatient services in February this year compared with previous months and should completely cease to weigh on inflation from March," they said.
Meanwhile, food inflation also edged up to 1.6 per cent, as prices of non-cooked food registered a steeper increase.
However, the cost of electricity and gas declined at a slightly faster rate, at minus 9.8 per cent.
The cost of retail and other goods also saw a faster rate of decline, at minus 1.9 per cent last month. This was mainly due to sharper reductions in the prices of clothing and footwear, and personal effects. Prices of medicines and health products fell as well.
Accommodation inflation was unchanged at 0.5 per cent.
Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said cyclical and structural forces will likely boost consumer prices in the coming quarters.
Cyclical factors include rising commodity prices, supply and logistical bottlenecks, rising housing rents and healthcare insurance premiums, and higher foreign labour costs due to border controls and quarantine requirements.
Structural factors that drive inflation include stricter foreign manpower measures and the shifting of manufacturing supply chains from China.
MAS and MTI expect core inflation this year to average 0 per cent to 1 per cent. But they added: "The forecast range for overall inflation is being reviewed given the recent sharper-than-expected increases in the prices of the non-core items."
This revised forecast range will be released in MAS' monetary policy statement next month.