SINGAPORE - Singapore's overall inflation turned positive for the first time in nearly a year owing to a smaller decline in the costs of services, as well as higher car prices and housing rents.
All-items inflation came in at 0.2 per cent in January on a year-on-year basis, up from 0 per cent the month before. This is the first time overall inflation has risen above zero since February last year.
Meanwhile, core inflation, which excludes accommodation and private road transport costs, edged up to minus 0.2 per cent last month, from minus 0.3 per cent last December, according to a report by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Tuesday (Feb 23).
The decline in core consumer prices eased last month on the back of a smaller fall in the cost of services
Core inflation, which better captures the underlying trend in consumer price, is the measure that MAS monitors most closely in its review of Singapore's monetary policy.
The rises in all-items and core inflation were in line with private economists' forecasts.
Private transport costs registered a steeper increase of 1.9 per cent in January, up from the 1.2 per cent rise in December last year, due to a larger increase in car prices and a more modest fall in petrol prices.
Likewise, accommodation inflation rose to 0.5 per cent in January, up from 0.3 per cent the previous month, as housing rents increased at a faster rate with the expiry of rental rebates given to households living in public rental flats.
Meanwhile, services costs fell at a slower pace to hit minus 0.3 per cent in January, easing from the minus 0.8 per cent last December. They were buoyed by higher tuition and other fees and point-to-point transport services costs.
However, the cost of retail and other goods fell at a slightly steeper pace of 1.3 per cent, compared with the 1.2 per cent drop in December last year, mainly due to larger declines in the prices of personal care products and clothing and footwear.
Food inflation dipped from 1.6 per cent in December to 1.5 per cent last month as the prices of non-cooked food and restaurant meals rose at a more moderate pace.
The cost of electricity and gas also plunged more sharply by 9.7 per cent, compared with the 6.7 per cent drop in December, due to a steeper fall in electricity prices as the electricity tariff was revised downwards.
MAS and MTI reiterated that in the quarters ahead, external inflation is likely to pick up amid the recovery in global oil prices.
Brent crude oil prices have risen further since the fourth quarter of last year, supported by output cuts among Opec+ members.
"At the same time, continuing negative output gaps in Singapore's major trading partners should cap the extent of the increase in underlying global inflation. On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued," said MAS and MTI.
Core inflation is forecast to turn mildly positive this year, as the projected rise in oil prices from a year ago leads to a pick-up in electricity and gas tariffs, and the disinflationary effects of government subsidies introduced last year fade.
Some components of domestic services inflation could also gradually increase in line with economic recovery, said MAS and MTI.
"Meanwhile, accommodation costs have stabilised, with housing rents in some areas registering increases. In addition, private transport costs have risen on the back of firm demand for cars and higher petrol costs," they said.
MAS and MTI maintained their inflation forecasts for this year. Core inflation is expected to average from 0 per cent to 1 per cent this year, while overall inflation is projected to be between minus 0.5 per cent and 0.5 per cent, according to official forecasts.
Both core and overall inflation averaged minus 0.2 per cent last year.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, expects there will be "further upside pressure" for overall inflation for the rest of this year.
Core inflation is also likely to turn "modestly positive" by March, according to the bank's model, amid the rise in crude oil prices from a year ago and the fading of disinflationary pressures from government subsidies introduced last year, she added.
She added that domestic price pressures are likely to stay muted despite the gradual economic recovery. This comes amid the soft labour market conditions and commercial property market, with the retail sector still subdued and many workers working from home.
The bank expects core inflation to be 0.5 per cent and overall inflation to come in at 0.7 per cent this year, assuming oil prices stay around $55 per barrel. "If oil prices average $60 per barrel for the rest of this year, then headline CPI (consumer price index) could rise closer to the 1 per cent year-on-year handle," said Ms Ling.
Likewise, UOB economist Barnabas Gan said the rebound in commodity prices, including Brent crude oil prices, could add to rising inflation risk.
However, he cautioned: "Still, the uncertainties surrounding Covid-19 and the negative impact it has on economic growth could mitigate price pressures. Renewed Covid-19 infections across Singapore's key trading partners may continue to cap import price pressures and inject headwinds to overall external inflation.
"On the domestic front, the continued slack in Singapore's labour market will likely cap wage pressures as well."
The bank expects both headline and core inflation to come in at 0.5 per cent this year.