Updated quick takes: Further weakness seen in Singapore's near term inflation

INFLATION fell for the 17th straight month in Singapore in March, but core inflation edged up slightly, according to the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

CPI-All Items inflation eased to -1.0 per cent in March from -0.8 per cent in February, due primarily to a significant decline in private road transport cost.

MAS Core Inflation, which excludes the costs of accommodation and private road transport, edged up to 0.6 per cent in March from 0.5 per cent a month ago, mostly on account of higher food inflation.

For the whole of 2016, MAS Core Inflation is likely to be in the lower half of the 0.5-1.5 per cent forecast range, barring a sharp rise in global oil prices. CPI-All Items inflation is projected to remain negative throughout 2016, and average -1.0-0.0 per cent for the whole year.

Here are some comments:

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

"A dovish US Federal Reserve and lower oil prices will open up room for policy easing if required, especially amid subdued core inflation and sub-par growth. MAS policy shift to neutral at its April meeting does not necessarily mark the end of the current easing cycle which began in January 2015. The next easing move will involve a re-centring lower of the S$NEER policy band, if downside risks to Singapore's growth and inflation escalate."

"The MAS's dovish shift in stance on inflation vindicates our long held view that the risk has been always for further weakness in near term inflation, with any increase this year unlikely to head towards long-term average levels, especially if the growth outturn remains sub-trend."

"The MAS now sees core inflation within the lower half of the 0.5-1.5 per cent range, barring a sharp rise in global oil prices More significantly, the MAS now expects core inflation to average slightly below 2 per cent over the medium term, whereas in the past they had expected a rise towards its historical average."

Irvin Seah, senior economist at DBS:

"A new record has been set - but not exactly for the right reasons. The headline CPI inflation recorded the longest streak of negative inflation on record with a reading of -1.0 per cent year-on-year in March. The price barometer registered the 17th consecutive month of decline. The last time inflation had been stuck in the red for so long was far back in Sep 1975 - Dec 1976 where we had sixteen consecutive months of negative inflation."

"The slump in oil prices is certainly one of the key reasons behind the negative inflation. But the slowdown in growth momentum and the impact of earlier macro-prudential measures on housing and car purchases are also having a significant impact on the headline number."

"Negative inflation may persist in the coming months. With the excess supply in housing stock and the associated downward pressure on rentals, the housing CPI index may continue to fall. In addition, the Land Transport Authority had announced an increase in the supply of COE quota. This means a possible decline in private transport costs. Couple that with the low energy prices, and a significant portion of the CPI basket will remain on a downward trend."

"Moreover, the growth slowdown has further compounded the disinflationary pressure. And this will likely become more pronounced in the coming months with an overhanging risk of a technical recession. Full year inflation is projected to average -0.2 per cent along with a sub-par GDP growth rate of 1.5 per cent."

"Despite the fact that core inflation is expected to remain positive, it is likely to fall below expectations and below the central bank's target of 2.0 per cent in the medium-term. This explains the MAS's move to switch to a zero appreciation SGD NEER path in the recent policy meeting."