CPI falls for fourth straight month, to 0.3%
SINGAPORE – Consumer prices fell for a fourth straight month in February, helped by plunging oil prices as well as falling housing rents and private transport costs, reinforcing expectations that the central bank will ease monetary policy next month to support growth.
The All-Items Consumer Price Index (CPI) fell 0.3 per cent year-on-year last month, data released by the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) yesterday showed. Cushioned by the higher prices of food and services during the Chinese New Year period, the decline was smaller than the 0.4 per cent decrease in January, but fell short of the 0.2 per cent drop forecast by economists in a Reuters poll.
The latest data marked the longest deflationary trend since the seven consecutive months of falling consumer prices from June to December 2009, when the economy was struggling to recover from the global financial crisis.
“The reasons for the continuation of the negative inflationary trend remain the same: Accommodation and private road transport costs had continued to decline ... Moreover, healthcare costs continued to grow at a much slower pace,” said UOB economist Francis Tan.
The decline in private road-transport costs accelerated to 5.8 per cent last month from 5 per cent in January due to a sharper downward correction in Certificate of Entitlement (COE) premiums, the MAS and MTI said. Meanwhile, petrol pump prices fell following the plunge in global crude oil prices, but the pace of decline slowed after the increase in petrol duty rates.
A softer housing rental market also helped drive a 2.1 per cent year-on-year fall in accommodation costs last month, extending the 1.9 per cent decline in the previous month, they added.
Bank of America Merrill Lynch economist Chua Hak Bin said the MAS is likely to shift downward the midpoint of the Singapore dollar nominal effective exchange rate (S$NEER) band next month at its regular policy meeting in light of weaker growth prospects and lower inflation risks.
In a survey released last week by the MAS, private sector economists expected Singapore’s economy to grow by 2.8 per cent this year, slowing from last year’s growth of 2.9 per cent.
“The S$NEER has been testing the lower bound of the band over the past week ... Not re-centring the band in April would result in a further depletion of reserves,” Mr Chua said. “In our view, the pressure could moreover intensify if the US Federal Reserve decides to hike interest rates before the next policy meeting in October.
“We are not expecting the MAS to shift to a neutral bias as such a move is more drastic and occurs largely only in recessions and crises,” he added.
Mr Daniel Wilson, economist at Australia & New Zealand Banking Group, was quoted by Bloomberg as saying: “Probably what’s going to be on the minds of MAS will be the growth outlook. We do expect them to provide a little additional support through easing of policy.”
Stripping away the accommodation and private road transport costs, the MAS Core CPI rose 1.3 per cent last month, compared with 1 per cent in January.
However, this largely reflected the seasonal splurge on food and services during the Chinese New Year holidays, which fell in February this year and January last year.
Food prices rose 2.5 per cent last month, building on the 2.2 per cent increase in January, MAS and MTI said, while services inflation jumped 1.5 per cent from 1.2 per cent a month ago.
Still, the uptrend in core inflation showed that, despite the overall deflationary trend, the high costs of living and doing business remained a concern.
Barclays economist Leong Wai Ho said: “The pain of inflation has not gone away. A lot of the fall in the headline CPI was driven mainly by administrative sources and the oil drag, but prices of the bulk of the items in the CPI basket are still climbing.”
With demand-side inflationary pressures remaining intact and an ongoing tight labour market, Mr Leong, in what appears to be a minority view, expects the MAS to keep monetary policy unchanged after its surprise move in January to reduce the slope of the S$NEER band.
CORRECTION: An earlier report said the latest data marked the longest deflationary trend since the six consecutive months of falling consumer prices from June to December 2009. This is incorrect. It should be seven consecutive months of falling consumer prices from June to December 2009. We are sorry for the error.
