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Inflation eases in June, but cost pressures persist

SINGAPORE — Inflation slowed down more than expected last month after a recent high in May to reflect the smaller increases in private road transport and services costs, the latest official Consumer Price Index (CPI) data showed.

UBS has hired 88 client advisers in Asia-Pacific and they are mostly based in Hong Kong and Singapore. TODAY FILE PHOTO

UBS has hired 88 client advisers in Asia-Pacific and they are mostly based in Hong Kong and Singapore. TODAY FILE PHOTO

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SINGAPORE — Inflation slowed down more than expected last month after a recent high in May to reflect the smaller increases in private road transport and services costs, the latest official Consumer Price Index (CPI) data showed.

But analysts cautioned that last month’s easing does not point to a softer outlook for inflation, which will remain steady for the rest of the year as domestic cost pressure persists.

In June, all-items inflation dropped to 1.8 per cent, below the 2.4 per cent forecast in a Reuters’ poll and down sharply from May’s 2.7 per cent — which was the highest since March last year — due mainly to a smaller jump in car prices, while major categories such as services costs saw more moderate inflation.

“Services inflation eased to 2.2 per cent from 2.5 per cent in the preceding month owing to lower contributions from the cost of holiday travel, telecommunication and medical insurance,” said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

As a result, core inflation slowed for a second straight month to 2.1 per cent after May’s 2.2 per cent, but a drop to below 2 per cent will be unlikely this year, OCBC economist Selena Ling told TODAY.

“Holiday travel is hardly a good indicator to suggest that domestic cost pressure has eased. The labour crunch and the pass-through of higher wage costs will remain in the picture in the coming months, even though asset prices will likely moderate due to macro-prudential policies and greater supply ahead,” said Ms Ling, adding that a nominal wage growth of 4 to 5 per cent can be expected this year.

CIMB economist Song Seng Wun agreed: “The domestic pressure on core inflation hasn’t disappeared. In fact, the pass-through of wage costs to consumer prices has so far been slower than expected, but may become more visible as the economy further recovers.”

Core inflation, which excludes accommodation and private road transport costs, is commonly regarded as a reflection of the wage cost pressure, and the MAS and the MTI retain their 2 to 3 per cent forecast amid the tight labour market at home.

The official forecast for all-items inflation is being kept at 1.5 to 2.5 per cent, as the Government expects overall prices to ease in the second half due to lower imputed rentals and car prices, with Certificate of Entitlement quotas expected to rise more than expected. The trend was visible last month, when private road transport costs — which account for 11.6 per cent of the CPI basket — edged up by 2.8 per cent, down from May’s 8.1 per cent surge.

Meanwhile, accommodation inflation slowed to 0.5 per cent from 0.9 per cent in May, and is likely to remain stable going forward, said Ms Ling. “We should also continue to see moderation in property prices going forward due to the cooling measures, while the tightened foreign manpower policies will keep a lid on rental prices.”

With the structural conditions for inflationary outlook remaining the same, “I don’t think the MAS will adjust their exchange rate policy, at least until their next meeting in October this year”, CIMB’s Mr Song noted.

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