Singapore core inflation falls to decade low at -0.4% in July

CORE inflation, a key metric used by the central bank to develop Singapore's monetary policy, touched its lowest point in more than a decade in July.

Core inflation slipped to -0.4 per cent, with the pace of its fall widening from -0.2 per cent in the month before, according to government data released on Monday.

The figure, which was the lowest since hitting -0.5 per cent in January 2010, was in line with the median decline in private-sector estimates in a Bloomberg poll. Core inflation was depressed by a steeper fall in the cost of electricity and gas, as well as lower food inflation.

Meanwhile, headline or all-items inflation came in at ‐0.4 per cent, picking up slightly from -0.5 per cent in June, and beating analysts' estimates of a 0.6 per cent drop.

The more gradual year-on-year slide came largely on a smaller decline in the cost of private transport, according to the Ministry of Trade and Industry (MTI) and Monetary Authority of Singapore (MAS), which compile the monthly data.

Unlike the MAS core inflation indicator, the all-items consumer price index includes the cost of housing and private road transport.

The annual change in private transport costs moderated to -2.1 per cent in July, from -4.4 per cent in June, as car prices increased. Meanwhile, accommodation inflation eased to 0.4 per cent, from 0.5 per cent in June, as housing rents rose more slowly.

The decline in services costs slowed to -0.8 per cent, from -1 per cent in June, while the fall in retail and other goods moderated to -1.6 per cent, from -1.8 per cent - both on the back of a pick-up in telecommunication services and equipment expenses.

Food inflation inched down to 2.2 per cent, from 2.3 per cent in June, on a slower rise in the cost of non-cooked food items such as meat, oils, vegetables, and bread.

But the cost of electricity and gas plunged much more sharply in July, falling by 15.2 per cent year on year from a smaller decline of 3.9 per cent in June. The MTI and MAS attributed the steeper drop to a downward revision of the household electricity tariff for the July-to-September period, amid lower energy prices.

The MTI and MAS have kept their full-year forecast for both core and all-items inflation to remain subdued and range between zero and -1 per cent in 2020.

Still, supply-chain disruptions from the Covid-19 pandemic could continue to push up imported food prices, even though international food commodity prices have fallen, they added.

Barclays Bank economist Brian Tan expects core inflation to decline by 0.4 per cent in the third quarter, before moderating and clocking in at -0.2 per cent for the full year.

"With labour market conditions deteriorating in Q1 and likely to weaken further in Q2, demand-pull inflation pressures should remain soft through the rest of this year," he said in a note.

His view echoed the MTI and MAS, which believe that weak labour market conditions in Singapore will dampen consumer demand and limit price increases for discretionary goods and services.