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Singapore narrows inflation outlook range; core inflation at -0.1% in Sept

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Domestically, costs pressures are expected to stay subdued, and the accumulated slack in the labour market would weigh on wages.

SINGAPORE'S authorities have upgraded the lower band of their overall inflation forecast for 2020 and are expecting core inflation to turn "mildly positive" in 2021 after it has remained in negative territory for eight consecutive months.

Both core inflation and headline inflation are expected to come in between -0.5 and zero per cent in 2020, the the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in a joint statement. This is a slightly improved outlook compared to its previous forecast of -1 to zero per cent.

Core inflation, which excludes accommodation and private transport, inched up to -0.1 per cent year on year in September, from -0.3 per cent the previous month, according to fresh data from the Singapore Department of Statistics on Friday.

The milder pace of decline was mainly driven by smaller reductions in the costs of services and electricity and gas, MAS and MTI said.

Headline inflation, which covers all items, came in at zero per cent year on year, up from -0.4 per cent in August, due to a "more gradual decrease in private transport costs", MAS and MTI said.

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Services costs fell more modestly due to a steeper increase in telecommunication services fees, as well as a smaller drop in tuition and other fees, they said.

Meanwhile, the cost of electricity and gas declined at a slightly slower rate as the take-up of new subscriptions under the Open Electricity Market slowed, according to the authorities.

In the quarters ahead, external inflation is likely to remain low amid weak demand in key commodity markets and the persistence of negative output gaps in Singapore's major trading partners, MAS and MTI said.

Domestically, costs pressures are expected to stay subdued, and the accumulated slack in the labour market would weigh on wages, they added.

"Nevertheless, core inflation is forecast to turn mildly positive in 2021, as the disinflationary effects of government subsidies introduced this year fade and demand for some domestic services gradually picks up," both authorities said.

Accommodation costs are expected to fall, partly due to the decline in foreign employment, while private transport costs should rise modestly amid an anticipated reduction in the supply of COEs, they added.

In 2021, core inflation is expected to average zero to 1 per cent, and headline inflation, -0.5 to 0.5 per cent according to the authorities.

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