Lower COE premiums slow CPI down

SINGAPORE — Consumer prices slid to a four-month low in July on the back of lower Certificate of Entitlement (COE) premiums, although domestic cost pressures stemming mainly from a tight labour market could present some upside risks.

Last month, the all-items Consumer Price Index (CPI) rose 1.2 per cent from a year earlier, slowing from June’s 1.8 per cent increase and matching March’s inflation rate, data from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) showed yesterday.

Private road transport costs fell 1.6 per cent last month after rising 2.8 per cent in June, mainly due to a high base last year, when prices of COE premiums surged.

A slower increase in petrol pump prices also contributed to the lower private road transport costs last month, said the MAS and MTI yesterday.

Amid a soft housing rental market, accommodation costs were largely unchanged, after edging up by 0.5 per cent in the previous month.

Food prices increased by 3 per cent last month, lower than the 3.2 per cent in June, due to a slower rate of increase in prices of non-cooked food items as well as prepared meals.

Stripping out the costs of private road transport and accommodation, the core inflation rate was 2.2 per cent last month, lower than the 2.1 per cent in June.

“It has been quite a while since the core inflation rate was higher than the headline inflation rate. This shows the Government has been effective in controlling car and housing prices,” said United Overseas Bank (UOB) economist Francis Tan.

For the rest of the year, the MAS said inflation is expected to continue easing, with car prices projected to exert a slight drag.

The CPI-All Items inflation is expected to come in at 1.5 to 2 per cent this year, while core inflation is expected to stay elevated at 2 to 3 per cent, said the MAS.

“Food, which is included in core (inflation), could present a source of upside risks, as the effects of higher toll charges and fuel price hikes in Malaysia are passed on to our raw food prices,” said Barclays economist Leong Wai Ho.

“Companies are still grappling with labour costs and may increase their prices. These will be industries that really need labour, such as healthcare, food and beverage, as well as education. However it may be services that are more inelastic and will pass on more costs, such as healthcare,” said Mr Tan.

The MAS said as much yesterday, stressing that domestic cost pressures, particularly stemming from a tight labour market, are likely to remain the primary source of inflation.

Services inflation was higher at 2.5 per cent last month — higher than the 2.2 per cent in June. This was mainly attributed to increases in pre-school fees, medical treatments and holiday travel.

Economists also expect the MAS to continue to let the Singapore dollar appreciate at a modest pace.

“With Singapore’s gross domestic product growth not really at risk of a big slowdown, I think the MAS can concentrate on the rising core inflation. Now, since core inflation is an issue it is looking closely at, I think it will still keep its monetary policy unchanged with the current modest and gradual appreciation stance,” said Mr Tan.