Singapore cuts 2019 headline inflation forecast as January reading eases to 0.4%

SINGAPORE consumer price growth cooled in the first month of 2019, as a slower increase in electricity and gas costs outweighed the price hike in services, according to official data released on Monday. The authorities are now trimming some inflation expectations for the year.

On the back of a downturn in global oil prices, the forecast for all-items or headline inflation for 2019 was lowered by half a percentage point, to between 0.5 per cent and 1.5 per cent, down from between one per cent and 2 per cent previously.

The forecast for core inflation was kept unchanged at between 1.5 per cent and 2.5 per cent in a reflection of the smaller weightage given to oil-related items by that indicator, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in a joint release on Monday.

For January, headline or all-items inflation came in at 0.4 per cent on a year-on-year basis - down from 0.5 per cent in December 2018, and falling short of the 0.6 per cent estimate by private economists in a Bloomberg poll.

The increase in electricity and gas costs slowed to 6.5 per cent, from 14.6 per cent the previous month. The authorities attributed this to a downward revision in electricity tariffs and the impact of the nationwide roll-out of the Open Electricity Market scheme.

Meanwhile, MAS's core inflation measure - which strips out private road transport and housing costs - eased to 1.7 per cent, against 1.9 per cent in December 2018, as private transport prices continued to shrink on cheaper cars and accommodation costs fell on lower rent.

Retail inflation stood at 1.4 per cent, gentler than December's 1.7 per cent increase, as prices fell for telecommunication equipment and recreation and entertainment items.

Food costs rose by 1.4 per cent, split down the middle between the 1.3 per cent price increase in food items such as bread, fish and fruits, and the 1.5 per cent increase in prepared meals.

The costs of services rose by 1.7 per cent in January, picking up from the 1.5 per cent increase the month before, which the authorities said was largely due to a 4.3 per cent public transport fare hike in end-December.

Education fees were up by 3.2 per cent, while healthcare costs rose by 1.7 per cent.

These increases, along with food inflation, suggest "that further price increase in these clusters could make-up further fall in fuel and utilities prices", said Barnabas Gan, an economist at United Overseas Bank (UOB).

Noting that "Brent crude prices usually lead fuel and utilities prices by one month", he added that should this trend continue, fuel and utilities price growth could slow again in February.

"External sources of inflation have receded as global oil prices fell sharply in Q4 2018, mainly on over-supply concerns," said MAS and MTI in their statement.

"As a result, global oil prices are expected to be lower this year compared to 2018. On the domestic front, supportive labour market conditions should underpin wage growth and continuing price pressures.

"However, the extent of overall price increases will be capped by greater market competition in several consumer segments, such as telecommunications, electricity and retail."

Bank watchers generally held to their own forecasts - of either an unchanged stance or more tightening for the Singapore dollar - for the MAS's next monetary policy meeting in April, but have acknowledged that the situation is a close call.

"As the January data does not show evidence of a broad-based easing of price pressures, we maintain that the MAS could tighten monetary policy again," said Sanjay Mathur, ANZ's chief economist for the region.

Still, he added, his team will continue to keep an eye on inflation, with the data release for February due in March before the MAS meets for its policy review in April.

On a monthly basis, headline prices were down by 0.3 per cent in January, against a 0.1 per cent increase the month before, while core inflation eased to 0.1 per cent, down from 0.3 per cent.

"The mild inflation year on year and negative inflation month on month suggest that inflation is still under control in Singapore," said economist Tan Khay Boon, senior lecturer at SIM Global Education.

"However, to the average income households, healthcare and education inflation will still be of concern as both items exhibited an upward trend in price movement."

Dr Tan added, in the wake of the Feb 18 Budget's diesel duties hike: "The higher taxes on diesel may result in more expensive transport if companies were to pass on the extra tax to consumers."