Longest streak of negative inflation in Singapore ends after two years

Shoppers at the fruit section in NTUC FairPrice Xtra.
Shoppers at the fruit section in NTUC FairPrice Xtra. PHOTO: ST FILE

Consumer price index flat last month amid rising commodity prices, better global outlook

Singapore's longest spell of negative inflation finally came to an end last month on the back of gradually recovering commodity prices and brighter prospects for global growth in the coming year.

After 24 straight months of sliding readings, the consumer price index - the main measure of inflation - was flat in November, compared with the same month a year ago.

Lower oil and car prices and falling accommodation costs - partly due to the soft property market - have been the main drivers behind this long bout of negative inflation.

However, prices of necessities such as food, education and healthcare have continued to inch upwards over this period. That is why the central bank does not regard this run of falling prices as "deflation" - which indicates a chronic lack of demand across an economy.

Last month's zero per cent inflation rate was an important milestone, said UOB economist Francis Tan. "It shows that we may start to experience some inflation in 2017. Some inflation is good as it could signal stronger demand."

Yesterday's inflation data came alongside figures from the Economic Development Board showing that manufacturing output jumped 11.9 per cent in November over the same month last year, the fastest pace since March 2014.

This means full-year economic growth could come in stronger than previously expected.

"Although it may still be too early to make a conclusion, stronger economic activities for an open economy such as Singapore point to some uplift in global demand," said Mr Tan, who added that this would be accompanied by a lift in inflation.

Rising commodity prices helped end Singapore's longest spate of negative inflation. After crashing to about US$30 a barrel earlier this year, crude oil prices have since rallied past US$50 a barrel, and are on track to rise further next year.

This means households should expect an uptick in utility costs in the coming year, said CIMB Private Bank economist Song Seng Wun.

Last month's non-negative inflation reading also reflected a pick-up in services and food inflation, the Monetary Authority of Singapore and the Trade and Industry Ministry said yesterday.

Food inflation edged up to 2 per cent from 1.9 per cent in October, due to a larger increase in the prices of non-cooked items such as vegetables and fruit.

Overall services inflation also ticked up last month to 1.5 per cent, compared with a year ago. This was due partly to the progressive reduction of subsidies for MediShield Life premiums, which contributed to a rise in the cost of medical and dental treatment.

These helped lift core inflation - which strips out accommodation and private road transport costs - which rose to 1.3 per cent last month from October's 1.1 per cent.

Government forecasters expect core inflation to average around 1 per cent this year before rising to 1 per cent to 2 per cent next year.

The increase will be gradual because of subdued economic growth and the soft labour market.

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A version of this article appeared in the print edition of The Straits Times on December 24, 2016, with the headline 'Longest streak of negative inflation in S'pore ends after two years'. Print Edition | Subscribe