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Consumer prices fall for 22nd straight month

SINGAPORE — Consumer prices fell for the 22nd consecutive month in August, led mainly by the continued decline in private road transport and accommodation costs, but economists said the downward trend does not reflect a recession-driven deflationary spiral.

SINGAPORE — Consumer prices fell for the 22nd consecutive month in August, led mainly by the continued decline in private road transport and accommodation costs, but economists said the downward trend does not reflect a recession-driven deflationary spiral.

The All-Items Consumer Price Index (CPI) fell 0.3 per cent year-on-year last month, slowing from the 0.7 per cent pace of decline in July, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) in a joint statement on Friday (Sept 23). This is close to the 0.4 per cent fall expected by economists in a Reuters poll.

The slower rate of decline was due to the moderation in the fall in private road transport costs, said the MAS and MTI. Economists said the extended period of decline resulted mainly from the slump in oil prices, as well as administrative and policy measures, and is different from a deflationary phase during a recession.

“Although headline inflation remained in the contraction zone for the longest period that we have seen since Singapore’s independence in 1965, we are not in a deflationary situation like the 2008/09 financial crisis, where core inflation fell for nine consecutive months due to a lack of consumer demand, as well as corporate and business price-cutting in the aftermath of the global financial crisis. Moreover, unemployment spiked during that period and Singapore entered into a technical recession. The economic indicators currently are not pointing to such adverse conditions,” said UOB economist Francis Tan.

ANZ economist Ng Weiwen said: “Looking ahead, we see headline year-on-year inflation turning positive towards the later part of the year, with the disinflationary effects of oil as well as budgetary and other one-off measures fading off. Furthermore, private road transport cost is anticipated to pick up in the fourth quarter owing to the expiry of the one-year road tax rebate for petrol vehicles and the upward revision of car park charges from Dec 1.” 

The MAS’ current monetary policy stance is unlikely to change in the central bank’s coming meeting next month, said Mr Tan. “The MAS will adopt a wait-and-see approach and not act until the inflation picture gets clearer before its April 2017 meeting,” he said.

Mr Ng said: “While economic activity remains subdued, we do not see a significant deterioration in the near-term growth and inflation outlook that will justify an easing move at this point.”

At a briefing to announce Singapore’s second-quarter gross domestic product last month, the MAS reiterated that its current neutral monetary policy stance “remains appropriate for overall macro-economic conditions in 2016”.

In August, private road transport costs fell by 1 per cent, compared with the 4.4 per cent slump in the preceding month, due to the expiry of the one-year road tax rebate for petrol vehicles as well as a smaller decrease in petrol prices. Meanwhile, accommodation costs fell by 3.6 per cent, unchanged from the previous month, reflecting the continued softness in the housing rental market.

MAS core inflation, which excludes the costs of accommodation and private road transport, was at 1 per cent, unchanged from the previous month, as the uptick in services inflation was offset by a more moderate increase in food prices. The MAS and MTI have kept their full-year forecasts for headline inflation unchanged at minus 1 per cent to zero, and core inflation around 1 per cent.

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