Singapore core inflation cooled to 1% in 2019

SINGAPORE'S core inflation - a key central bank indicator - cooled to 1 per cent in 2019, down from 1.7 per cent in 2018, according to official figures released on Thursday.

This was in line with official forecasts pegging core inflation - which excludes accommodation and private road transport costs - to fall at the lower end of the 1 per cent to 2 per cent range.

Meanwhile, headline or all-items inflation came in at 0.6 per cent in 2019, inching up from 0.4 per cent the year before. This was a shade above the official projection of 0.5 per cent.

"Inflation has bottomed out but will likely remain manageable in 2020," Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye argued in a report.

The latest numbers came as headline inflation rose to 0.8 per cent in December 2019, up from 0.6 per cent in November. It reached its highest level since May on the back of a faster pick-up in the prices of both private road transport and services.

Core inflation, which the Monetary Authority of Singapore (MAS) uses as a guide for monetary policy, also ticked up to 0.7 per cent, from 0.6 per cent in November.

Fuelled by higher pump prices, private road transport costs jumped by 3.1 per cent year on year in December, picking up speed from the 2.3 per cent price increase in November.

Also, the cost of services grew by 1.3 per cent, up from 1.1 per cent the month before, on a steeper hike in fees for telecommunications and education, as well as airfare.

Food inflation was 1.8 per cent in December, up a hair's breadth from 1.7 per cent in November.

Otherwise, accommodation costs fell by a milder 0.1 per cent, compared with 0.2 per cent in November, on an easing decline in rents.

Electricity and gas costs also fell by a gentler 11.4 per cent, against 11.8 per cent decline in the month prior, amid the liberalisation of the household electricity market.

Still, retail goods prices fell more sharply - by 0.7 per cent in December, compared with 0.5 per cent fall in November - on larger drops in the cost of clothes and shoes, and recreation and entertainment items. This was even as personal care product prices went up.

According to Dr Chua and Ms Lee, the uptick in December "is consistent with the pick-up seen in most of Asia on the back of rising food and oil prices towards the end of 2019".

The MAS and Ministry of Trade and Industry (MTI), which compile the data, reiterated in a joint statement that core and headline inflation should both fall between 0.5 per cent and 1.5 per cent in 2020 "as the negative contribution of imputed rentals to headline inflation dissipates".

Citi analysts Kit Wei Zheng and Ang Kai Wei noted that the official outlook has been tweaked since December, with core inflation expected to come in "within the range" mentioned - rather than to "average" the numbers - which the analysts said may point to "greater confidence that monthly inflation prints would not fall out of the range".

The MAS and MTI also reaffirmed expectations of benign external inflation in the coming quarters, despite near-term oil price volatility, while the domestic labour market could see lower wage growth.

Still, United Overseas Bank economist Barnabas Gan noted that, on the manpower front, tighter foreign worker quotas for the services sector and S Pass holders kicked in on Jan 1 - which may increase costs in labour-intensive service industries, such as wholesale and retail trade, information and communication, as well as accommodation and food services.

Otherwise, the MAS and MTI have now said that the pass-through of non-labour costs such as retail rents to consumers "would be constrained by the subdued economic environment". They had described the economy as "weaker", rather than "subdued", in their previous statement.