Singapore's core and overall inflation shrink in October

Cost pressures likely to be muted for rest of year but core inflation projected to register mild upturn next year

Shoppers at the Marina Square shopping mall last month. October's fall in core inflation, which excludes accommodation and private road transport expenses, came from sharper declines in the costs of services, retail and other goods, as well as food.
October's fall in core inflation, which excludes accommodation and private road transport expenses, came from sharper declines in the costs of services, retail and other goods, as well as lower food inflation.ST PHOTO: KUA CHEE SIONG

Singapore's core and headline inflation both weakened last month, continuing a deflationary trend seen in previous months.

Inflationary pressures are likely to remain muted for the rest of the year, experts said.

Core inflation, which excludes accommodation and private road transport costs, came in at -0.2 per cent year on year last month, slightly below the -0.1 per cent seen in September, according to data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

This was due to steeper declines in the costs of services, retail and other goods, as well as lower food inflation.

Core inflation has declined on a year-on-year basis for nine straight months.

Overall inflation dipped to -0.2 per cent year on year last month, down from zero in the previous month, on the back of a sharper drop in private transport costs, lower accommodation inflation and the fall in core consumer prices.

United Overseas Bank economist Barnabas Gan noted that while lower consumer prices could still be seen for the rest of the year, inflation from food, communications and vehicles could help to cushion the deflationary effects from other clusters.

"Nonetheless, low oil prices are likely here to stay amid an absent tourism-driven demand at least for the rest of 2020," he said, noting that cheaper oil will help to cap the cost of transportation.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said core inflation will likely stay muted as services and retail inflation will be curtailed by continued safe distancing and work-from-home measures, a weak labour market and cautious consumer sentiments.

"External inflation is expected to stay soft on the back of weak demand conditions in key commodity markets," they said.

Services costs decreased more quickly at 0.5 per cent year on year last month, compared with a 0.1 per cent decline in September, due to lower telecommunication services inflation and a larger drop in tuition and other fees.

Private transport costs also fell more steeply, at 1.3 per cent compared with 0.1 per cent in the previous month, as car prices rose at a more gradual pace amid a sharper decline in fuel expenses.

Food prices climbed at a slower rate of 1.7 per cent last month, down slightly from 1.8 per cent in September, as the cost of non-cooked food rose at a more moderate pace.

Electricity and gas costs fell 7.2 per cent last month, compared with a 14.2 per cent decline in the previous month, due to upward revisions in electricity and gas tariffs.

MAS and MTI said external inflation is likely to remain low in the quarters ahead amid weak demand conditions in key commodity markets and a persistence of spare production capacity in Singapore's major trading partners.

Cost pressures are also expected to stay subdued locally, with the accumulated slack in the labour market dampening wages.

However, core inflation is forecast to turn "mildly positive" next year, with demand for some domestic services gradually picking up and the disinflationary effects of government subsidies introduced this year fading.

In the report, MAS and MTI reiterated their core and overall inflation forecast of between -0.5 and 0 per cent this year.

Core inflation is predicted to average 0 to 1 per cent next year, while overall consumer inflation is projected to come in at between -0.5 and 0.5 per cent.

Correction note: This article has been edited for clarity.  

A version of this article appeared in the print edition of The Straits Times on November 24, 2020, with the headline 'Singapore's core and overall inflation shrink in October'. Print Edition | Subscribe