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Inflation at near-5-year low as car, housing costs drop

SINGAPORE — Prices of goods and services in Singapore rose last month at the slowest pace in nearly five years as private road transport and accommodation costs plummeted, leading economists to suggest that consumer prices might decline in the next two months to bring full-year inflation closer to the lower end of the official forecast range.

The fall in accommodation cost deepened to 1 per cent last month as a result of the weak rental market. Today File Photo

The fall in accommodation cost deepened to 1 per cent last month as a result of the weak rental market. Today File Photo

SINGAPORE — Prices of goods and services in Singapore rose last month at the slowest pace in nearly five years as private road transport and accommodation costs plummeted, leading economists to suggest that consumer prices might decline in the next two months to bring full-year inflation closer to the lower end of the official forecast range.

The consumer price index (CPI) inched up 0.1 per cent last month from October a year ago, following the 0.6 per cent increase in September, a joint statement by the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said yesterday.

The rise was well below the median projection of 0.6 per cent by economists in a Reuters poll and marked the slowest since December 2009, when the CPI dipped 0.5 per cent in the wake of the global financial crisis.

“(The slowdown in inflation was) mainly on account of base effects associated with fluctuations in car Certificate of Entitlement (COE) premiums, as well as sharper declines in the costs of accommodation and oil-related items,” the statement said.

The high base last year saw the decline in private road transport cost accelerating to 5.6 per cent last month from the 2.8 per cent decrease in September.

The fall in accommodation cost deepened to 1 per cent last month from the 0.6 per cent drop in September, as a result of the weak rental market.

Meanwhile, prices of oil-related items, such as electricity tariffs and petrol, were down 2.1 per cent, extending the 0.6 per cent in the preceding month, as global oil prices remained weak.

Economists said these factors would likely keep headline inflation subdued in the remaining two months of the year, with the possibility of prices dipping into negative territory. However, they said there is no risk of sustained deflation.

“When we last saw deflation in 2009, demand was weak across almost all segments of the CPI basket because consumers pulled back on the risk of the unemployment rate climbing higher, but that is not the case now. I see that only in the two main categories: Private road transport and accommodation, but these are due to controlled administrative measures,” said UOB economist Francis Tan.

A steeper decline in electricity tariffs and a slower rise in food prices led to the core inflation rate — which excludes private road transport and accommodation costs — moderating to 1.7 per cent in October from 1.9 per cent in September.

The MAS-MTI statement reiterated that core inflation would probably remain firm despite “significant uncertainty” over global oil prices, as domestic food inflation could stay elevated while wage pressures persist amid the tight labour market.

Against that backdrop, Credit Suisse analyst Michael Wan said the central bank would probably maintain its current stance of allowing a modest and gradual appreciation of the Singapore dollar.

“The sources of inflation are still pretty benign at the moment. For instance, part of it was driven by lower oil prices which, in my view, is unlikely to be seen as a negative. Right now, we still have the tight labour market as a constraint to central bank easing, so I do think (the MAS) will remain on hold,” Mr Wan said.

Ms Selena Ling, OCBC’s head of treasury research and strategy, said the latest data brought the year-to-date CPI headline inflation to 1.3 per cent and core inflation to 2 per cent, within the official forecasts of between 1 and 1.5 per cent, and between 2 and 2.5 per cent, respectively.

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