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    Jun 24, 2015

    Inflation slides for 7th straight month here

    INFLATION came in below zero for the seventh consecutive month in May, marking the longest run of negative inflation in six years.

    While the headline number came as no surprise to economists, they were caught off guard by lower-than-expected core inflation, which is seen as a better gauge of everyday expenses.

    The consumer price index, a measure of headline inflation, fell 0.4 per cent last month amid lower oil prices, a soft housing rental market and Budget measures kicking in.

    This followed a 0.5 per cent decline in April.

    The last time Singapore experienced a stretch of negative inflation was in 2009. Back then, prices slid as consumers were reluctant to spend and firms cut prices amid the global financial crisis.

    Economists do not regard this run of falling prices as "deflation", a term reserved for a more sustained and entrenched economic problem with often-dire results.

    The latest bout of negative inflation is largely the result of cheaper oil and loan curbs that have dampened the property and car markets.

    Private road transport costs - which include car and petrol prices - ticked up 1 per cent last month after falling 2.1 per cent in April.

    This was due to higher certificate of entitlement premiums and a smaller year-on-year decline in pump prices.

    Accommodation costs fell by 2.5 per cent last month, similar to the previous month, reflecting the soft housing rental market.

    Food and services inflation also moderated last month.

    Food inflation eased to 1.8 per cent from April's 2.1 per cent, as a slower rise in non-cooked food prices more than offset the sharper price increases for restaurant meals.

    Services inflation fell to 0.5 per cent from 1.1 per cent a month earlier, largely because measures announced in the Budget in February took effect.

    These include the reduction in concessionary foreign domestic worker levy and waiver of national examination fees.

    These factors combined to drag down the Monetary Authority of Singapore's (MAS') core inflation measure, which strips out accommodation and private road transport costs to better gauge everyday expenses. It came in at 0.1 per cent last month, down from April's 0.4 per cent.

    MAS expects core inflation to fall between 0.5 and 1.5 per cent for the full year.

    Some economists have pointed out that if core inflation remains close to zero or sinks into negative territory in the coming months, it might fall short of the MAS target.

    This might prompt the central bank to either adjust its target range or ease the rise of the Singapore dollar at its next policy meeting in October, said DBS economist Irvin Seah, who added that declining core inflation in recent months could suggest weakening domestic demand and slowing growth.

    However, HSBC economist Joseph Incalcaterra said last month's low core inflation reading "should prove ephemeral", given that the labour market remains tight and regional food prices may rise in the second half of the year due to the El Nino weather phenomenon.

    "The central bank will likely attribute the print to short-term disinflationary noise that is distracting from the medium-term inflationary trend," he added.