Singapore core inflation turned negative in February, 1st time in decade, as coronavirus upends travel

A photo from March 20, 2020, shows an almost-deserted Changi Airport Terminal 4 due to a large number of cancelled flights. ST PHOTO: ALPHONSUS CHERN

SINGAPORE - Core inflation last month fell into negative territory - the first time in a decade - as the coronavirus outbreak sent airfares and holiday expenses slumping.

Core inflation, which excludes the costs of accommodation and private road transport, fell sharply to -0.1 per cent year on year last month, from 0.3 per cent in January, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said on Monday (March 23).

This was the lowest for core inflation since it hit -0.5 per cent in January 2010.

Overall inflation also came in lower at 0.3 per cent in February on a year-on-year basis, compared with 0.8 per cent in the preceding month.

This occurred mainly due to the fall in core inflation as well as lower private transport inflation, MAS and MTI noted.

The core inflation and overall inflation forecast ranges will be released in MAS' upcoming monetary policy statement, they said, bypassing usual forecasts stated in the monthly inflation reports.

The forecast range stated last month was 0.5 to 1.5 per cent for core inflation and overall inflation.

The cost of services fell to -0.4 per cent in February, a slide from the 0.5 per cent in January, because of the fall in airfares and holiday expenses.

Private transport inflation was also lower due to a smaller increase in car and petrol prices, falling to 2.4 per cent last month from 4.6 per cent in January.

Food inflation dropped to 1.6 per cent last month, from the 1.7 per cent the month earlier, as the prices of prepared meals recorded smaller increases, while non-cooked food inflation was broadly unchanged.

The cost of electricity and gas fell at a slower pace, to -7.4 per cent in February from the -8.1 per cent the month before, as the Open Electricity Market had a smaller dampening effect on electricity prices, following a slowdown in new take-up rates.

Accommodation costs registered a larger increase, going up to 0.4 per cent last month, from 0.3 per cent the month earlier, in line with a stronger pickup in housing rentals.

The cost of retail and other goods fell at a more gradual pace, to -1 per cent, from -1.4 per cent in January, as clothing and footwear items and medicines and health products recorded smaller price declines.

MAS and MTI said that in the quarters ahead, external sources of inflation are likely to remain benign, amid weak demand conditions and generally well-supplied food and oil commodity markets.

"Oil prices declined sharply in March and could stay depressed for an extended period amid the global economic slowdown and an anticipated rise in oil supply," they said.

"However, international measures to contain the Covid-19 outbreak have led to supply chain disruptions, which could put some upward pressure on imported food prices."

The Covid-19 outbreak has weighed heavily on the aviation and tourism industries, which could in turn lower the prices of travel-related items in the CPI basket, they noted.

"In addition, the implementation of safe distancing measures and fall in tourist arrivals have dampened consumer demand, and will cap any price increases for discretionary goods and services."

Meanwhile, labour market conditions will continue to soften and dampen wage growth this year. The economic uncertainty from the outbreak is also likely to discourage firms from passing on any cost increases to consumers.

Inflationary pressures are thus expected to remain subdued in the near term, they noted. MAS and MTI said they will closely monitor price trends and assess the impact of the Covid-19 outbreak on inflation.


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