Singapore’s consumer prices fell the most in seven months in October amid lower housing and recreation costs, a sign the economy may not have recovered enough to spur demand.

The consumer price index declined 0.8% from a year earlier, after falling 0.4% in September, the Department of Statistics said in a statement today. The median forecast of 10 economists surveyed by Bloomberg News was for a 0.4% drop. Prices rose 0.6% from September, without adjusting for seasonal factors.

Singapore’s 2010 economic outlook is closely linked to global conditions and a “sluggish recovery” in demand for exports by companies such as Stats Chippac will moderate growth prospects, the government said last week. The trade ministry expects the economy will contract this quarter on an annualised basis after six months of expansion.

“Retail sales pulled back in September and exports fell behind expectations in October, highlighting concerns about the pace of recovery and indicating subdued inflation in the months ahead,” said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France’s Credit Agricole SA.

The central bank, which uses its currency rather than interest rates to manage price gains, forecasts inflation will be about zero this year. It said last month it will maintain a no-appreciation stance in its currency policy, refraining from further monetary easing after opting for a de-facto devaluation of the exchange rate in April to counter collapsing exports.

Food, Housing
Food prices, which make up 23% of the index, rose 0.8% in October from a year earlier, matching September’s increase. Transport and communications costs climbed 0.6%, while housing prices slid 4.7%.

Consumer prices may rise in the coming months after Singapore Power Ltd., the island’s main electricity provider, increased tariffs for the October-to-December quarter by an average 12.5% to take into account higher oil costs. Crude has climbed about 75% this year.

Inflation may average 2.5% to 3.5% in 2010, higher than an earlier prediction of as much as 2%, the government said last week, raising its forecast amid higher housing values.