Consumer prices down for 10th straight month

Singapore

CONSUMER prices in Singapore declined for a 10th straight month in August, contracting 0.8 per cent from the figure a year ago.

This was weaker than what some economists had expected and marked the Republic's largest year-on-year drop since November 2009.

The August headline inflation was double the 0.4 per cent decline in July, with the government attributing the fall mainly to the lower costs of private cars as Certificate of Entitlement (COE) premiums eased.

Data from the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) on Wednesday indicated that private road transport costs fell by 2.9 per cent, following a slide of 0.1 per cent in July.

This was the effect of the high base a year ago when COE premiums for cars rose sharply, as well as the one-year road tax rebates for petrol vehicles.

Accommodation costs declined by 2.9 per cent, extending the 2.8 per cent drop in the previous month, as the housing rental market in Singapore continued to soften.

Services inflation edged down to 0.5 per cent in August compared to 0.6 per cent in July, largely on account of the smaller increase in the cost of public road transport.

The cost of retail items fell by 0.6 per cent after coming in unchanged in July, mainly reflecting the decline in clothing and footwear prices.

Food inflation, meanwhile, was unchanged from the previous month at 1.9 per cent. The price increases for both non-cooked food items and prepared meals were "broadly stable", said the MTI and MAS.

Core inflation, which excludes the costs of accommodation and private road transport, moderated to 0.2 per cent in August - from 0.4 per cent in July - reflecting lower services and retail goods inflation.

The latest inflation report is the final one before the central bank decides on the monetary policy during its bi-annual policy meeting, which is likely to take place around mid-October.

UOB economist Francis Tan commented that the continued weakness in core inflation "may induce some dovish biased-ness" in the eventual policy decision.

"In fact, since the last inflation report on Aug 24, the MAS changed tack and warned that 2015 core inflation risks coming in at the lower end of its 0.5-1.5 per cent forecast range," he said.

In their joint statement, the MAS and MTI noted that external sources of inflation were expected to stay generally benign, given ample supply buffers in the major commodity markets.

They added that global oil prices were likely to be subdued and come in much lower for the whole of 2015, compared to the US$93 average recorded last year.

"While some domestic cost pressures persist, the extent to which businesses are able to pass on accumulated costs to consumer prices could be tempered by the modest economic growth environment," they said.

Core inflation is expected to remain subdued at around the current rate in the near term; headline inflation could continue to be dampened by lower car prices and imputed rentals on owner-occupied accommodation.

For the year 2015 as a whole, the MAS and MTI said that core inflation and headline inflation are projected to come in at the lower half of the forecast range of 0.5-1.5 per cent and -0.5-0.5 per cent respectively.

Japanese financial firm Nomura said in a note on Wednesday that the latest consumer price index drop continued to support its view that the MAS would shift its Singapore dollar nominal effective exchange rate (S$NEER) in October, likely via a band widening.

ANZ economist Ng Weiwen felt that an easing in S$NEER would exacerbate the extent or rate rises, resulting in higher debt-servicing costs for households. "This dynamic, in addition to MAS' focus on cost pressures arising from a tight labour market, would constrain the MAS' policy response," he said.