Decline in Singapore's core consumer prices eases in September, close to zero

It was the eighth straight month of core consumer prices falling below those of the same period a year ago.
It was the eighth straight month of core consumer prices falling below those of the same period a year ago.ST PHOTO: LIM YAOHUI

SINGAPORE - The decline in core consumer prices eased further last month, while overall inflation moved up to zero, according to data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Friday (Oct 23).

Core inflation, which excludes accommodation and private road transport costs, came in at minus 0.1 per cent in September, 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 to 0.5 per cent.

Both core and overall inflation in September outshone market expectations of year-on-year inflation being minus 0.3 per cent in September.

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 at 1.8 per cent as the prices of non-cooked food and food services rose at a similar pace as in August.

Likewise, accommodation inflation was unchanged at 0.4 per cent as housing rents saw a similar pace of increase as in the previous month.

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.

Core inflation is expected to average between 0 per cent and 1 per cent next year, while overall inflation is projected to be between minus 0.5 and 0.5 per cent.

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 in October to be positive as Singapore’s economy continues to recover after the easing of social distancing measures, although at still weak levels. 

United Overseas Bank economist Barnabas Gan said that while low consumer prices could still be seen 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.” 

The bank’s full-year overall and core inflation forecasts are minus 0.3 per cent for this year.

Ms Selena Ling, OCBC Bank head of treasury research and strategy, said that as Singapore's economy prepares to transit to phase three by the end of this year, there might be room for consumer spending to pick up and this could bode well for domestic prices to return to positive territory early next year. 

The bank expects full-year overall and core inflation for this year to be minus 0.3 per cent and minus 0.2 per cent respectively, before the figures become positive next year.