May core inflation stable, overall consumer prices up

Last month's core inflation remained stable as higher retail and food inflation offset a steeper decline in the prices of electricity and gas, according to data released yesterday.

Core inflation - which strips out private road transport and accommodation costs - came in at 1.3 per cent year on year in May, unchanged from the figures in April.

However, when private road transport and accommodation costs are included, overall consumer prices rose slightly to 0.9 per cent last month.

This is up from 0.8 per cent in April, said the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) in a joint statement.

Analysts polled by Bloomberg had expected overall inflation to ease to 0.6 per cent in May and core inflation to hit 1.3 per cent.

MAS and MTI said accommodation costs fell by 1 per cent, which reflected a slower pace of decline in housing rentals, as well as a stronger pickup in the cost of housing maintenance and repairs.

The cost of electricity and gas slipped 4 per cent, steeper than the 2.8 per cent drop in the preceding month. This was due to the dampening effect of the phased nationwide launch of the Open Electricity Market on electricity prices.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said: "Utilities costs will likely continue falling for the rest of the year as more households switch to alternative retailers."

However the cost of private road transport rose by 1.5 per cent last month, higher than the 1.1 per cent increase in April, mainly on the back of a steeper rise in car prices which more than offset a smaller increase in petrol prices.

The economists added: "While (this) component will likely continue to rise in coming months due to low base effects from 2018, the pace may slow to below 1 per cent as car prices may have peaked in April and May. The Certificate of Entitlement premiums in June softened as consumers turned more cautious amid the uncertain economic outlook."

The overall cost of retail items also recorded a larger 0.5 per cent year-on-year increase last month compared with the 0.2 per cent rise in April.

Food inflation was up 1.4 per cent in May, largely due to a faster pace of increase in the prices of prepared meals.

Services inflation was 2 per cent in May, unchanged from April, as a stronger pickup in holiday expenses was offset by a larger decline in the cost of telecommunication services fees as well as smaller increases in airfares and recreational and cultural services fees.

MAS and MTI noted that external sources of inflation are likely to be benign for the rest of the year.

"Global oil prices for the full year are currently not expected to exceed last year's average. Global food prices should also pick up only slightly on average."

They added that, on the domestic front, labour-market conditions have remained firm and will support moderate wage increases, such that unit labour costs should continue to rise. "However, an acceleration in inflationary pressures is unlikely against the backdrop of slower gross domestic product growth, uncertainties in the global economy, as well as the continuing restraining effects of MAS' monetary policy tightening in 2018," they said.

Core inflation is expected to come in near the mid-point of the forecast range of 1 per cent to 2 per cent in 2019. Meanwhile, overall inflation is expected to average 0.5 per cent to 1.5 per cent this year.

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said: "Essentially, the dampened global growth prospects, coupled with the lingering US-China trade uncertainties which are manifesting in the manufacturing and electronics purchasing manager's index (PMI), are likely to keep even any potential hint of hawkish intentions under a lid for the interim."

A version of this article appeared in the print edition of The Straits Times on June 25, 2019, with the headline 'May core inflation stable, overall consumer prices up'. Print Edition | Subscribe