Singapore’s core and headline inflation eased in October, just a month after showing signs of an increase.
Core inflation – which gauges price increments to sectors other than accommodation and private transport – was down by -0.2% year-on-year, according to the Consumer Price Index (CPI) released by the Department of Statistics (Singstat) on Nov 23.
This is a marginal slip from the -0.1% posted in October and follows lower cost of services and retail.
Meanwhile, headline inflation – the total measure of inflation in the economy – came in at -0.2%, down from the 0% seen in the previous month.
This came in response to a sharp -1.3% drop in the cost of private transport, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) detail in a joint release.
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This is a significant deviation from the -0.1% dip recorded in September and comes as the prices of cars rose at a more gradual pace while the cost of fuel declined more sharply.
In the same regard, the cost of retail and other goods was down -1.6%, from -1.3% in September, due to a steeper drop in telecommunication equipment costs as well as a fall in the prices of recreational goods.
A further decline was mitigated by a gradual increase in the price of household supplies.
Similarly, the cost of services eased by -0.5% in October, from -0.1% in the month before. This is on account of lower telecommunication service inflation and a larger decline in fees collected from tuition and other services.
An interesting change was seen in the -7.2% drop in prices for electricity and gas, an improvement from the previous month’s -14.2%. This comes as the sector – which has been in the red for over a year – saw costs halve from revisions to electricity and gas tariffs.
Selena Ling, who heads the treasury research and strategy department of OCBC Bank expects this level to be sustained in the ongoing 4Q2020 ending in December as electricity tariffs were hiked to 22.93 cents/kwh from 20.97 cents/kwh in 3Q2020 ended September.
Conversely, food and accommodation were the only sectors to register a growth in prices, albeit at a slower pace from September.
Accommodation prices were up 0.3%, from 0.4% previously, due to a slower pace of increase in housing rents. Meanwhile, food prices rose by 1.7%, edging down from the previous month’s 1.8% as the prices of non-cooked food rose at a more moderate pace.
Looking ahead, MAS and MTI expect inflation to average between -0.5% and 0% this year, before edging up next year.
This is due to the low and weak demand conditions in Singapore’s key commodities markets as well as the persistence of negative output gaps in key trading partners, the MAS and MTI note.
On a domestic front, they expect cost pressures to remain subdued, as “the accumulated slack in the labour market will weigh in on wages,” the authorities point out.
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Come 2021, core inflation is expected to average between 0% and 1%, while headline inflation falls between -0.5% and 0%.
This is as “the disinflationary effects of government subsidies introduced this year fades and demand for some domestic services gradually picks up,” MAS and MTI explain.
In this time, accommodation costs are slated to fall due in part to the decline in foreign employment while private transport costs are expected to rise modestly after the highly anticipated reduction in the supply of Certificates of Entitlements.
OCBC’s Ling shares similar sentiments and has penciled in a contraction of 0.3% for headline inflation and 0.2% for core inflation.
“Externally-driven inflation should remain limited by weak demand conditions in key commodity markets and resurgent Covid waves could continue to dent consumer demand and growth in our major trading partners. Domestic cost pressures are also weighed down by the soft labour market conditions which should cap wages,” she explains.
