Overall inflation forecast cut to 0.5%-1.5% range

Headline inflation came in at 0.4 per cent in January on a year-on-year basis, down from 0.5 per cent in December 2018.
Headline inflation came in at 0.4 per cent in January on a year-on-year basis, down from 0.5 per cent in December 2018.PHOTO: ST FILE

New figures prompted by lower oil prices; core inflation forecast unchanged at 1.5%-2.5% range

Lower oil prices have prompted officials to lower their headline - or overall - inflation forecast for the year.

It is now estimated that overall inflation will come in between 0.5 per cent and 1.5 per cent, down from an earlier expectation of 1 per cent to 2 per cent.

The forecast for core inflation - this excludes accommodation and private road transport costs - remains unchanged at between 1.5 per cent and 2.5 per cent.

This reflects the smaller weight of oil-related items in the measure, according to a joint statement from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry yesterday.

They added that the extent of overall price increases will be capped by greater market competition in several consumer segments, such as telecommunications, electricity and retail.

The forecasts came as official numbers showed that prices cooled last month.

Overall inflation eased to 0.4 per cent compared with the same month last year, down from 0.5 per cent in December.

This reflected a slower pace of increase in the cost of electricity and gas, which outweighed higher inflation in services.

Likewise, core inflation dipped from 1.9 per cent to 1.7 per cent.

The figures were lower than expected, with a Bloomberg poll of analysts predicting that headline inflation would hit 0.6 per cent with core inflation tipped at 1.8 per cent.

Maybank Kim Eng economist Chua Hak Bin said the drop in core inflation is likely to "provide some breathing space and take the pressure off for MAS in April to tighten monetary policy further".

He said that inflation numbers across the region have been "benign", with slowing growth and cheaper oil reducing price pressures.

"Part of the reason for the collapse in trade and exports is that businesses are in a deep freeze on their investment plans," said Dr Chua, referring to ongoing trade tensions.

"We're all hoping that the US and China will come to some kind of trade deal in the coming weeks, if not months... If there is a deal, I hope some of these companies' business sentiment will reignite, which will lead to some recovery in business investments. Correlated with that is trade."

REIGNITING BUSINESS SENTIMENT

Part of the reason for the collapse in trade and exports is that businesses are in a deep freeze on their investment plans. We're all hoping that the US and China will come to some kind of trade deal in the coming weeks, if not months... If there is a deal, I hope some of these companies' business sentiment will reignite, which will lead to some recovery in business investments. Correlated with that is trade.

MAYBANK KIM ENG ECONOMIST CHUA HAK BIN, noting that the drop in core inflation is likely to "provide some breathing space and take the pressure off for MAS in April to tighten monetary policy further".

The cost of electricity and gas rose at a slower pace of 6.5 per cent last month, down from 14.6 per cent in December, due largely to lower oil prices in the preceding months and the effect of the phased nationwide launch of the Open Electricity Market.

Meanwhile, the overall cost of retail items rose by 1.4 per cent year on year, slowing from the 1.7 per cent increase in December.

This stemmed from a steeper decline in the prices of telecommunications equipment, recreation and entertainment goods, as well as a slower pace of increase in the costs of household durables and supplies.

Food inflation came in at 1.4 per cent, unchanged from December, while services inflation picked up from 1.5 per cent to 1.7 per cent. This was mainly due to higher public transport fares that outweighed a smaller rise in holiday expenses.

Private road transport costs dropped 3.4 per cent, against the 3.7 per cent fall in December, as the pace of reduction in car prices eased.

Accommodation expenses fell 1.9 per cent, the same pace of decline in December. This was due to a more gradual fall in residential rents offsetting a smaller rise in the cost of housing maintenance and repairs.

A version of this article appeared in the print edition of The Straits Times on February 26, 2019, with the headline 'Overall inflation forecast cut to 0.5%-1.5% range'. Print Edition | Subscribe