Core inflation stays negative but eases slightly in August

Last month was the seventh straight month of core consumer prices falling below prices during the same period a year ago in Singapore, but the cost of retail and other goods recorded a smaller decline of minus 1.3 per cent, compared with minus 1.6 pe
Last month was the seventh straight month of core consumer prices falling below prices during the same period a year ago in Singapore, but the cost of retail and other goods recorded a smaller decline of minus 1.3 per cent, compared with minus 1.6 per cent the month before.ST PHOTO: MARK CHEONG

The slide in Singapore's core consumer prices eased last month on smaller declines in the cost of services, retail and other goods, as well as electricity and gas.

Core inflation, which excludes accommodation and private road transport costs, came in at minus 0.3 per cent last month, up from the decade low of minus 0.4 per cent in July.

It was the seventh straight month of core consumer prices falling below prices during the same period a year ago.

Meanwhile, overall inflation was unchanged at minus 0.4 per cent, as a steeper fall in private transport costs offset the more moderate decline in core inflation, according to data released by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

Barclays Bank economist Brian Tan said the gentler decline in core inflation is in line with a gradual recovery in the Covid-19-hit economy. "That said, the fact that prices are still underwater suggests the economy remains under significant pressure and far from pre-coronavirus levels," he added.

The inflation data showed private transport costs fell at a faster year-on-year pace of 2.3 per cent last month, compared with the 2.1 per cent drop in July, on lower car price inflation.

The cost of retail and other goods recorded a smaller decline of minus 1.3 per cent last month, compared with minus 1.6 per cent the month before, as the prices of clothing and footwear and recreational goods fell at a more moderate pace.

The cost of electricity and gas also declined at a slower rate last month, at minus 14.6 per cent compared with minus 15.2 per cent in July, as the take-up of new subscriptions under the Open Electricity Market eased.

Food inflation fell last month, with prices rising 1.8 per cent compared with 2.2 per cent the previous month, owing to lower non-cooked food and food service inflation.

Accommodation inflation was unchanged at 0.4 per cent as housing rents saw a similar pace of increase as in July.

Service costs fell at a slower pace of 0.5 per cent last month compared with the 0.8 per cent drop the previous month, because of a smaller fall in point-to-point transport service costs and a larger increase in telecommunications service fees.

 
 
 

CIMB Private Banking economist Song Seng Wun said that although prices for services and some consumer items fell at a slower pace last month - perhaps owing to improved domestic demand after circuit breaker measures were eased - the subdued macro outlook and weaker labour market conditions will continue to exert downward pressure on prices for discretionary goods and services.

MAS and MTI noted that in the quarters ahead, external sources of inflation are likely to remain benign amid weak global demand conditions. "Oil prices are expected to stay low for an extended period, while international food commodity price increases should generally be contained amid improved supply conditions.

"Domestically, subdued economic sentiment and weak labour market conditions will dampen consumer demand, thereby keeping price increases for most discretionary goods and services low. The accumulation of spare capacity in the economy will also curb overall cost pressures."

STRAITS TIMES GRAPHICS

MAS and MTI kept their full-year forecasts for both core inflation and overall inflation at between minus 1 per cent and 0 per cent.

United Overseas Bank economist Barnabas Gan said the bank is keeping its full-year headline and core inflation forecasts at minus 0.3 per cent.

"The mix of falling domestic and tourism-led demand coupled with low oil prices for the rest of the year are formidable headwinds against consumer prices," he said.

A version of this article appeared in the print edition of The Straits Times on September 24, 2020, with the headline 'Core inflation stays negative but eases slightly in August'. Print Edition | Subscribe