Singapore’s core and headline inflation remained in the red for the seventh straight month in August 2020, but eased slightly from the decade-low numbers seen in July.
Core inflation – which gauges price increments to sectors other than accommodation and private transport – came in at -0.3% year-on-year in August, according to the consumer price index (CPI) released by the Department of Statistics (Singstat) on September 23.
This is a marginal improvement from the 0.4% contraction posted in July.
Meanwhile, headline inflation – the measure of the total inflation in the economy – came in at -0.4%, unchanged from the previous month.
This comes as a moderate decline in the prices of most sectors offset a steeper fall in private transport costs which contracted 2.3% in August. This is worse than the -2.1% in July, and follow a drop in car price inflation.
The price levels of other sectors remained in the red, but showed signs of easing. For instance, the cost of retail and other goods fell by -1.3% in August compared to -1.6% in the previous month thanks to more moderate fall in the prices of clothing and footwear and recreational goods.
In the same regard, the cost of services eased to -0.5% from -0.8% in July, following smaller point-to-point transport services costs. A greater increase in the fees of telecommunication services helped lift prices of the sector.
Similarly, a slower take-up rate of new subscriptions under the Open Electricity Market depressed the cost of electricity and gas by 14.6% in August. The sector – which has been in the red for over year – had previously recorded a 15.2% decline in July.
Meanwhile, only food, accommodation, household durables and services and communication saw inflation in the positive territory.
The cost of household durables and services for one rose to 0.3% in August, up from 0.2% in July, while that for communications was surged by 1.9% from the previous month’s 0.9% growth. These movements come presumably, as most employees continue to work from home and require more of such services.
Food prices, conversely, came in at 1.8%, easing from July’s 2.2% growth due to lower inflation levels for non-cooked food and food services.
On the other hand, accommodation prices was flat at 0.4% as housing rents rose at a similar pace in August.
Looking ahead, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) expect inflation to remain subdued at their previous forecast range of -1% and 0% in 2020.
This is due to the lower oil prices that are expected to weigh on the prices of the energy-related components in the metric, the authorities note.
They add that improving supply conditions should help put a ceiling on the increments to food commodity prices.
On a domestic front, they expect cost pressures to remain low, as “weak labour market conditions will dampen consumer demand, thereby capping price increases for discretionary goods and services”.
To this end, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect Singapore’s inflation levels to remain in the red for the rest of the year. However, they reckon the pace of decline will ease services and retail costs normalise.
What this means is, a maintenance of a neutral bias (zero appreciation of the Singapore Dollar Nominal Effective Exchange rate (S$NEER) at the MAS’ upcoming meeting in October, the duo say.
As a comparison, the S$NEER is currently trading at around +0.3% above the estimated mid-point.
