Singapore's core inflation falls to -0.3% in December as costs of services decline

SINGAPORE: Consumer prices in Singapore declined in December last year, driven mainly by a larger fall in costs of services as well as lower food inflation.

Core inflation fell to -0.3 per cent year-on-year in December, compared with November’s -0.1 per cent, data from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) showed on Monday (Jan 25).

Core inflation excludes the price of private transport and accommodation. These items are excluded as they tend to be significantly influenced by supply‐side administrative policies and are volatile, the agencies said.

The headline consumer price index (CPI), or overall inflation, came in at 0 per cent in December, up from the -0.1 per cent in November, primarily due to a rise in private transport costs.

For the whole of 2020, core inflation and overall inflation came in at -0.2 per cent, lower than their respective outturns of 1.0 per cent and 0.6 per cent in the previous year.

READ: Singapore economy shrinks a record 5.8% in a pandemic-hit 2020

FALL IN COSTS OF SERVICES

In December, services costs fell by -0.8 per cent year-on-year, compared with -0.2 per cent the month before, mainly on the back of smaller increases in public transport fares and telecommunication services fees, as well as a steeper decline in tuition and other fees.

The sharper fall in services costs was also driven by larger declines in airfares and holiday expenses in December, said MTI and MAS. However, airfares, together with most of the components in the holiday expenses CPI, were imputed using the overall change in overall inflation as they have not been available since April last year due to COVID-19 travel restrictions.

Food inflation dipped to 1.6 per cent year-on-year in December from the 1.8 per cent in November on account of smaller increases in non-cooked food and restaurant meals.

The cost of electricity and gas declined at a slightly slower rate of 6.7 per cent in December, compared to the 6.8 per cent decline in November, as the take up of new subscriptions under the Open Electricity Market eased.

"Retail electricity price plans under the OEM generally charge a rate that is lower than SP Group’s electricity tariff. Hence, as the take‐up of OEM plans slows on a year-on-year basis, the dampening effect of the OEM on electricity prices also declines," said MAS and MTI.

The cost of retail and other goods fell at a rate of 1.2 per cent in December, slower than the 2 per cent decline in November, due to a smaller drop in the prices of clothing and footwear, as well as personal care products.

An increase in the costs of recreational and cultural goods, as well as telecommunication equipment, also lent to the slower pace.

Private transport costs rose by 1.2 per cent in December, up from -1.3 per cent in November, primarily because of a sharper increase in car prices.

Accommodation inflation remained unchanged in December at 0.3 per cent.

READ: Commentary: Singapore economy set for V-shaped recovery this year but jobs market may take longer to rebound

EXTERNAL INFLATION LIKELY TO PICK UP

MAS and MTI said external inflation is likely to pick up in the quarters ahead amid the expected recovery in global oil prices. However, the extent of the increase will be capped by persistent negative output gaps in Singapore’s major trading partners.

“On the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued,” said the agencies, adding that some components of domestic services inflation may gradually increase, in tandem with the economic recovery.

For the year, core inflation is forecast to turn mildly positive, as the projected rise in oil prices from a year ago leads to a pickup in the oil‐related components of the CPI and the disinflationary effects of government subsidies introduced in 2020 fade, said MAS and MTI.

Meanwhile, accommodation costs are expected to fall as the decline in foreign employment will continue to weigh on rentals, but private transport costs could rise modestly on the back of improving demand, said the agencies.

For 2021, core inflation is expected to average 0 per cent to 1 per cent, while overall inflation is expected to be between -0.5 per cent and 0.5 per cent.