Smaller price dip signals negative inflation may end soon

A lady shopping for groceries at Giant Tampines on Jan 13, 2016.
A lady shopping for groceries at Giant Tampines on Jan 13, 2016. ST PHOTO: NEO XIAOBIN

Overall consumer prices posted the smallest drop in 14 months in August, signalling that Singapore's longest spell of negative inflation may be nearing an end. The smaller price dip was due to transport costs falling less than they had before and higher prices for services.

The consumer price index fell 0.3 per cent last month from the same period a year ago, after sliding 0.7 per cent in July, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry yesterday.

The dip in the headline number was marginally lower than the 0.4 per cent fall tipped by private-sector economists in a Bloomberg poll although the August reading makes it 22 straight months of falling consumer prices.

In fact, headline inflation "troughed" in the second quarter, said the MAS, and is "projected to rise in the coming months".

Citi economist Kit Wei Zheng says inflation could turn positive as soon as the last three months of the year. "MAS now expects higher private road transport costs as the road tax rebate granted in Budget 2015 ended in July."

Meanwhile, core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - rose 1 per cent in August from the same period a year ago - and the same increase as in July. This was slightly below economist expectations for a 1.1 per cent rise, as the higher cost of services was offset by more moderate increases in food prices.

The MAS has reaffirmed its projection for core inflation to average 1 per cent this year, despite weaker imported inflation, subdued economic growth prospects and slower wage growth.

Most economists agreed that the latest inflation data alone makes no case for the central bank to change its monetary policy stance when it does its biannual review next month. In April, the MAS surprised markets by taking the Singapore dollar off the path of modest and gradual appreciation, setting a zero appreciation path instead as the global economic outlook dimmed.

UOB economist Francis Tan said the MAS is likely to adopt a "wait- and-see approach" until the inflation picture gets clearer before the April 2017 meeting.

However, ANZ economist Weiwen Ng noted that the Singapore dollar is expensive compared with the currencies of trading partners like the United States.

A version of this article appeared in the print edition of The Straits Times on September 24, 2016, with the headline 'Smaller price dip signals negative inflation may end soon'. Subscribe