Quick takes: Negative inflation headlines in Singapore seen persisting in H1 2016

Singapore's inflation eased for the 13th straight month as latest figures show that headline inflation came in at -0.8 per cent in November, unchanged from October.

Core inflation, which excludes the costs of accommodation and private road transport, came in at 0.2 per cent compared to 0.3 per cent in the previous month, largely reflecting the lower food and services inflation.

Here are some comments from economists and analysts:

Weiwen Ng, economist, ASEAN and Pacific, ANZ Research:

"Headline inflation remains entrenched in negative territory, reinforced by the decline in oil price and sub-potential growth. We expect that negative headline prints to persist for the first half of 2016, suppressed by further softness in housing rentals and car prices."

"Still, Singapore is not in deflation with price declines concentrated in certain segments of the CPI basket rather than broad based."

"But to us, the risk is for further weakness in near-term inflation, with any rise next year not likely to head towards long-term average levels, especially if the growth outturn remains sub trend and crude oil prices treading near 11-year lows. Amid a tepid growth outlook and increased labour market slack, the undershoot in inflation profile from MAS baseline forecasts might prompt a further calibration in policy easing."

UOB Global Economics and Markets Research:

"Year-to-date, headline inflation fell 0.5 per cent year-on-year, while core inflation registered a growth of 0.5 per cent year-on-year, right at the lower bound of the 0.5 to 1.5 per cent forecast by the Monetary Authority of Singapore (MAS). With global consumer price actions remaining benign due to the downward pressures on the prices of major commodities as well as manufactured products, Singapore, being a price-taker, will continue to see weak inflation trend as we go into 2016.

"Going into 2016, we will like to caution that there could be upside risks to inflation. First, barring any further decline in global oil/commodity prices, the low prices this year will likely witness the dissipation of base effects and provide a support in 2016 on an on-year basis. Next, we anticipate the disinflationary effects of the government's budgetary measures (the medical subsidies from the Pioneer Generation packages launched since Sep 2014) to come to an end over the next couple of months. Finally, the ongoing El Nino weather phenomenon may pose some risks in terms of higher food prices due to disruption in food supplies.

"With the MAS keeping steady their dovish Singapore dollar nominal effective exchange rate (S$NEER) policy at least until April 2016 (and we currently rule out any possibility of another one-off policy action ala Jan 2015 surprise), we maintain our USD/SGD forecast of 1.43/USD by end of 2015 and onto 1.46/USD by mid-2016, where the catalyst will come from the divergence in the monetary policies between the US Federal Reserve (where we forecast 4 rate hikes of 25bps each from the Fed in 2016) and the MAS (where we forecast no change to current S$NEER policy in the April policy meeting)."