SINGAPORE (Apr 23): Singapore’s core inflation continued its decline, falling deeper into the red in March. 

The price gauge, which registers inflation levels excluding accommodation and private transport costs, came in at -0.2% for March 2020, according to the consumer price index (CPI) released by the Department of Statistics on Thursday.

This is slightly below the -0.1% recorded in February, and is in line with the expectations of private sector economists’ responses to a Bloomberg poll.

Meanwhile, headline inflation – the measure of total inflation in the economy – remained unchanged, a downward easing from the 0.3% uptick registered the month before. This surpasses the 0.2% contraction forecast by market watchers.

Data from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) shows the slip in overall inflation follows steeper declines in the cost of services such as education, telecommunication, healthcare and point-to-point transport.

In the same vein, services inflation dropped significantly to -0.7%, from the -0.4% logged the month before. This comes amid a reduced consumption of these activities following the implementation of safe distancing measures restricting movement.

The cost of retail and other goods fell gradually to -0.9% from February’s -1.0%, as recreational goods, medicines and other health products recorded smaller price declines.

Similarly, private transport inflation came in at -0.3% in March, a sharp deviation from the 2.4% expansion logged the month before. This comes on the back of a fall in petrol prices and parking fees as well as a smaller increase in car prices. 

Meanwhile, electricity and gas costs continued its decline to -6.2% registering the highest dip for the month. While an improvement from the -7.4% logged in February, March’s decline comes as the Open Electricity Market had a smaller dampening effect on electricity prices due to a slowdown in new take-up rates.

Accommodation costs conversely rose 0.5%, from 0.4% the previous month, following a stronger pickup in housing rentals, presumably from Malaysians seeking temporary accommodation in Singapore after the imposition of the movement control order in mid-March.

For now, the MAS and MTI expect inflationary pressures to remain subdued in April, following the circuit breaker measures that kicked off on April 7.

The consequential safe-distancing measures and weaker labour market “will dampen consumer demand, thereby capping prices increases for discretionary goods and services,” the authorities note in a joint statement.

“Domestic cost pressures are likely to remain low as some degree of spare capacity in the economy emerges. Inflation is thus expected to remain subdued,” they add.

Moreover, external sources of inflation are expected to remain benign amid weak global demand conditions in the quarters ahead. 

“Oil prices should stay low for an extended period and will weigh on the prices of energy-related components in the same time,” the authorities observe.

“At the same time, international measures have led to supply chain disruptions, which could put some upward pressure on imported food prices”.

For now, the MAS and MTI are maintaining their full-year core and headline inflation forecast to between -1% and 0%. 

Private-sector economists are expecting similar CPI levels. United Overseas Bank (UOB) economist Barnabas Gan has penciled in a 0.3% contraction this year amid expectations of a continuation in deflationary pressures, especially since the government tightened non-essential service operations restrictions on the circuit breaker. The circuit breaker has been extended to June 1.

OCBC bank chief economist Selena Ling agrees, noting downside risks to both headline and core inflation for the upcoming months.

“The extension of the circuit breaker coupled with tightening of the commuting workforce from 20% to 15%, is also likely to dampen business confidence, weigh on hiring intentions and further curb consumer appetite for discretionary spending,” she observes.

With social distancing and containment measures to be lifted progressively after the circuit breaker, Ling cautions that “both headline and core inflation are likely to print in the negative territory” averaging between -0.4% and -0.6% in the coming months.

Despite these pressures, both Gan and Ling say there is no urgency for the MAS to adjust the Singapore Dollar Nominal Effective Exchange Rate (SGD$NEER) in the coming months, given the fluidity of the Covid-19 crisis.

As such, Ling adds that the fiscal policy – in the form of the $63.7 billion relief doled out to overcome the pressures of Covid-19 – will provide the main boost to Singapore’s economy. Monetary policy, on the other hand, will be utilised to manage liquidity conditions and to smooth out currency volatilities