Inflation stays negative for eighth straight month

Food prices rose 2 per cent last month after increasing by 1.8 per cent in May. Despite negative inflation, prices of core consumer items continued to rise.
Food prices rose 2 per cent last month after increasing by 1.8 per cent in May. Despite negative inflation, prices of core consumer items continued to rise.PHOTO: LIM YAOHUI FOR THE STRAITS TIMES

Officials expect trend to continue before consumer prices start rising late this year

Inflation stayed in negative territory for the eighth straight month in June although prices of core consumer items continued to rise.

Officials expect the trend of negative inflation to continue for some months before prices start to rise late in the year and into next year. Data out yesterday showed that the consumer price index (CPI) fell 0.3 per cent last month from June last year - the number predicted by a Reuters poll of economists. That was under May's 0.4 per cent drop and the 0.5 per cent fall in April, due mainly to costlier services, food and private road transport.

Food prices, which account for 21.7 per cent of the CPI basket, rose 2 per cent last month after May's 1.8 per cent increase. Private road transport costs - they make up 11.5 per cent of the basket - gained 1.2 per cent, up from 1 per cent in May.

But accommodation costs fell 2.6 per cent, just ahead of the 2.5 per cent drop in May, said the Department of Statistics yesterday.

The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry noted that services inflation increased 0.5 per cent last month. It added that the "sharper declines in airfares and healthcare services fees were more than offset by the higher costs of hotel stays and telecommunications services".

As a result, core inflation, which strips out accommodation and private road transport costs, was up 0.2 per cent following the 0.1 per cent increase in May.

Officials expect core inflation to be subdued in coming months but price increases may pick up pace towards the end of the year and into next year. The official forecast for this year is 0.5 per cent to 1.5 per cent for core inflation and minus 0.5 per cent to 0.5 per cent for headline inflation.

Yesterday's inflation reading came just days after the MAS said that the economy is not in deflation - which typically implies economic weakness - as most consumer items are still recording moderate price increases.

MAS managing director Ravi Menon said at a briefing on Tuesday that temporary factors such as cheap oil and Budget steps to assist households are keeping overall inflation down, but the impact of these could wear off heading into next year while the effect of wage costs may also increase.

UOB economist Francis Tan agreed: "Our forecast is that core inflation will be 0.5 per cent in October, 0.6 per cent by the year end, and around 0.7 per cent in March 2016.

"If oil prices further recover, we will see businesses starting to mark up their prices to offset the slow but gradual wage growth. Higher food and services costs will be a key inflationary driver as a result."

A version of this article appeared in the print edition of The Straits Times on July 24, 2015, with the headline 'Inflation stays negative for eighth straight month'. Print Edition | Subscribe