Inflation in January stays negative mainly due to crude oil slump

Singapore

INFLATION has sunk deeper into negative territory, due mainly to sharper price declines in direct oil-related items as well as lower food and services inflation.

In a joint statement on Monday, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry said that CPI-All Items inflation eased to minus 0.4 per cent in January from -0.1 per cent in December 2014.

The January headline rate of -0.4 per cent was slightly lower than what private sector economists had expected. The consensus estimate of economists polled by Bloomberg was a 0.3 per cent year-on-year fall in the Consumer Price Index (CPI).

Private road transport costs fell by 5 per cent in January compared with 5.3 per cent the previous month, owing to a smaller correction in car prices. Accommodation costs fell by 1.9 per cent due to a soft housing rental market, extending the 1.7 per cent decline in the previous month.

Economists cited lower oil prices, a cooling property market and medical subsidies due to the Pioneer Generation Package as key agents holding down inflation figures.

"The passthrough from labour costs has also been more benign than expected, and COE prices have fallen," said DBS economist Irvin Seah.

Food inflation moderated to 2.2 per cent from 2.7 per cent in December 2014, as a result of the high base in January 2014 when food prices rose significantly during the Chinese New Year festive period.

Given cuts in petrol pump prices and electricity tariffs following the correction in global oil prices, prices of direct oil-related items were down 13.6 per cent in January 2015 following a 7.4 per cent fall in December.

Overall services inflation also slowed to 1.2 per cent from 1.7 per cent in December due to enhanced subsidies for medication in polyclinics and Specialist Outpatient Clinics. Core inflation - which strips away the costs of accommodation and private road transport - was one per cent in January. This was down from 1.5 per cent in December, due to the cut in electricity tariffs as well as the fall in food and services inflation.

Economists are expecting inflation to remain muted for the first half of this year.

ANZ economists Daniel Wilson and Glenn Maguire, for example, say that headline inflation would "trend in negative territory over the first half of the year".

Meanwhile, OCBC economist Selena Ling notes that "this marks a very benign start to the inflation outlook for 2015", with core inflation not an exception.

However, Mr Seah was more optimistic. "It'll rebound back to positive level by mid-2015 due to the base effect as well as recovery in oil prices."

This year's report also saw the rebasing of the CPI series from 2009 to 2014 and updated weights of the series, although these are not projected to alter MAS forecasts for headline and core inflation, according to Barclays economists.