SINGAPORE (Feb 24): Singapore’s headline and core inflation for January has fallen sharper than expected by economists and official forecasts.
Headline inflation – the measure of the total inflation in the economy – came in at 0.8%, unchanged from the month before, according to the consumer price index (CPI) released by the Department of Statistics on Monday. The data is a smidgen below the 0.9% forecast by private-sector watchers in a Bloomberg poll.
Meanwhile, core inflation – which excludes accommodation and road transport costs – came in at 0.3%, a significant drop from the 0.6% logged in the previous month and below the 0.9% predicted by the Bloomberg poll.
“Part of the fall in core inflation also reflected the impact of the rebasing of the CPI to 2019 as the base year,” explain the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI), adding that the index was also affected by changes made to the weights and samples of items used in its computation.
CPI was further hit by a drag in consumer-facing sectors, such as retail and tourism-related industries, which have had declining consumption since the outbreak of the novel coronavirus (Covid-19).
In January, the only price increases seen were in private transportation and accommodation costs, which were eventually offset by lower inflation in the remaining core CPI basket, the MAS and MTI observe.
Meanwhile, prices of medical products, clothes and shoes declined 1.4% on year, a further drop from the 0.9% contraction it posted in December.
Services inflation eased to 0.5% in January 2020, from the previous month’s 1.2%, following lower cost of education from higher pre-school subsidies, lower healthcare costs and a smaller increase in telecommunication service fees.
Simultaneously, electricity and gas costs was down by 8.1% - smaller than its’s 11.4% decrease in December - following stiffer regulation of electricity tariffs.
For now, the MAS and MTI expect inflationary pressures to remain subdued in the near term amid Covid-19 as well as softening domestic labour market conditions.
“Economic uncertainty, including the effects of the Covid-19 outbreak, will likely discourage firms from passing on any cost increases to consumers,” note MAS and MTI in a joint statement.
As such, they are keeping their 2020 forecasts for both headline and core inflation unchanged at 0.5 to 1.5%.
On a macro front, private-sector economists are looking at a monetary policy easing by the MAS in April, based on expectations of a lower-than-expected full-year growth forecast and the possibility of a recession.
Barnabas Gan, an economist at the United Overseas Bank (UOB), says “the lack of inflation at the start of 2020 could fuel impetus for policymakers to spur growth via a loosening of monetary policy".
As such, "an easing of monetary policy may be on the cards in order to allow the [Singapore dollar nominal effective exchange rate] (SGDNEER) to weaken further in line with the softened economic outlook," he adds.
However, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Yu feel otherwise, as they expect the slowdown to be limited to the this quarter, ending in March.
“Our base case is for the MAS to maintain the current slight appreciation bias at the April policy meeting, unless the outbreak intensifies and a technical recession appears imminent in 2Q2020,” say Chua and Lee.
For now, the MAS and MTI are monitoring price trends and the impact of the rebasing of the CPI. So, whether the Singdollar is weakened in April, is left to be seen.
