Singapore’s core inflation eases to 1.7% in January

Singapore’s core inflation eases to 1.7% in January

A general view of the financial district skyline is reflected in a pond in Singapore
A view of the financial district skyline in Singapore. (Photo: AFP)

SINGAPORE: Singapore's core inflation eased to 1.7 per cent year-on-year in January from 1.9 per cent the previous month, according to the latest figures released on Monday (Feb 25). 

This mainly reflected a slower pace of increase in the cost of electricity and gas, which outweighed higher services inflation, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) in a press release.

The core inflation measure excludes changes in the price of cars and accommodation.

Headline inflation came in at 0.4 per cent, compared to 0.5 per cent in December, as a smaller rise in the cost of electricity and gas offset a stronger pickup in the cost of services.

The cost of electricity and gas rose at a slower pace of 6.5 per cent year-on-year, compared to the 14.6 per cent increase in December. 

This was largely due to a downward revision in electricity tariffs given lower oil prices in the preceding months, as well as the effect of the phased nationwide launch of the Open Electricity Market (OEM) on electricity prices.

Services inflation picked up to 1.7 per cent from the previous 1.5 per cent mainly on account of an increase in public transport fares, which outweighed a smaller rise in holiday expenses.

The overall cost of retail items rose by 1.4 per cent in January, easing from the 1.7 per cent increase in December. 

This mostly reflected a steeper decline in the prices of telecommunication equipment and recreation and entertainment goods, as well as a slower pace of increase in the prices of household durables & supplies.

In January, food inflation came in at 1.4 per cent, unchanged from December, as price increases for both non-cooked food items and prepared meals remained broadly the same.

Accommodation costs fell by 1.9 per cent, the same pace of decline as the previous month, as a more gradual fall in housing rentals offset a smaller rise in the cost of housing maintenance & repairs.

Private road transport costs slipped 3.4 per cent, a moderation from the 3.7 per cent fall in December, as the pace of reduction in car prices eased and more than offset lower petrol prices.

Looking ahead, MAS and MTI said that global oil prices are expected to be lower this year compared to 2018 due to oversupply concerns.

“On the domestic front, supportive labour market conditions should underpin wage growth and continuing price pressures," they said.

"However, the extent of overall price increases will be capped by greater market competition in several consumer segments, such as telecommunications, electricity and retail,” they added.

PRICE PRESSURES FROM HEALTHCARE AND EDUCATION

A handful of sectors saw higher prices, including education, which rose by 3.2 per cent, the fastest since June 2017, noted UOB economist Barnabas Gan.

Healthcare inflation came in at 1.7 per cent, the fastest since October 2018, while food prices rose 1.4 per cent, the fastest since September 2018.

"Collectively, these three clusters account for 34 per cent of the CPI basket, suggesting that further price increase in these clusters could make up further fall in fuel and utilities prices," Mr Gan said.

Dr Tan Khay Boon, senior lecturer at SIM Global Education, also noted the price increases in healthcare and education, saying the two segments are of concern to average income households.

"In addition, the higher taxes on diesel may result in more expensive transport if companies were to pass on the extra tax to consumers," he said, referring to an announcement made by Finance Minister Heng Swee Keat during Budget 2019.

Mr Heng had announced in his Budget speech on Feb 18 a 100 per cent increase in the excise duty on diesel fuel to S$0.20 per litre from S$0.10.

WILL MAS TIGHTEN MONETARY POLICY IN APRIL?

MAS expects core inflation - a closely watched indicator for monetary policy - to remain unchanged in the months ahead at the forecast range of 1.5 per cent to 2.5 per cent.

Given the sharp decline in global oil prices in recent months, headline inflation has been revised down to 0.5 per cent to 1.5 per cent.

Mr Jeff Ng, chief economist, Asia, at Continuum Economics said that, while he still expects MAS to tighten monetary policy in April, there is a growing chance that it could stand pat.

UOB's Mr Gan concurred: "There remains a basis for a tightening policy in April given the need for monetary policy to be pre-emptive. As such, we still expect the MAS decision to tighten FX policy again in April, although risks appear tilted towards a pause at this juncture, putting this as a close call."

Source: CNA/Reuters/ic(hs)

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