Oct 24, 2014

    Singapore's inflation drops to 7-month low

    CONSUMER price inflation again eased more than expected to 0.6 per cent last month in a seven-month low, as drops in housing and transport costs offset higher food prices.

    The median forecast of 20 economists polled by Bloomberg before the Department of Statistics released the data yesterday was for a 0.9 per cent year-on-year rise in the consumer price index.

    Core inflation, which strips out the costs of accommodation and private road transport, continued to inch down to 1.9 per cent last month, from 2.1 per cent in August.

    The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in joint comments that the easing last month was due to "a smaller increase in services costs and a further decline in accommodation cost".

    Services inflation slowed to 1.7 per cent last month from 2.1 per cent in the preceding month.

    MAS and MTI said: "This was mainly due to the moderation in the increase in medical and dental treatment fees, from 4.6 per cent in August to 2.4 per cent last month, which reflects the impact of enhanced medical subsidies, including the Pioneer Generation Package.

    "However, the contributions of telecommunication services, tertiary education and air transport were higher compared to (those in) August."

    As a result of the soft housing rental market, accommodation costs fell by 0.6 per cent, extending August's 0.2 per cent decline.

    Private road transport costs were lower by 2.8 per cent, after falling by 2.9 per cent in August, reflecting a more moderate fall in certificate of entitlement premiums than a year ago.

    Food inflation was higher at 3 per cent, against 2.9 per cent a month ago, because of a steeper increase in the prices of prepared meals.

    Last week, MAS lowered its headline inflation forecast to 1-1.5 per cent this year, from 1.5-2 per cent earlier.

    Its core inflation forecast for this year was narrowed to 2-2.5 per cent, compared to 2-3 per cent previously.

    Next year, headline inflation is expected to come in at 0.5-1.5 per cent, while core inflation is projected to average 2-3 per cent.

    Citi economists Kit Wei Zheng and Yap Kim Leng said that the fall in core inflation to below 2 per cent "appears contrary to the Monetary Authority of Singapore's expectation that core inflation would rise into early next year, given the still-tight labour market and higher food inflation, though the fall last month was largely because of larger medical subsidies and may thus be one-off".

    ANZ economists Daniel Wilson and Glenn Maguire said that once "dynamics such as the enhanced medical subsidies - which caused a one-off reduction in the level of health-care services cost - dissipate, a gradual uptrend in core inflation should continue".

    For the rest of the year, UOB economists Francis Tan and Jimmy Koh said they believed that both private road transport and accommodation costs "would continue to contribute negatively to headline inflation numbers".