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Core inflation edges up in December to highest level in 7 months

Amala Balakrishner
Amala Balakrishner1/23/2020 11:00 PM GMT+08  • 3 min read
Core inflation edges up in December to highest level in 7 months
Singapore’s headline and core inflation for 2019 has eased in line with economists’ expectations and official forecasts.
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SINGAPORE (Jan 23): Singapore’s headline and core inflation for 2019 has eased in line with economists’ expectations and official forecasts.

Headline inflation – the measure of the total inflation in the economy – came in at 0.6%, ahead of the 0.4% recorded in 2018, according to the consumer price index (CPI) released by the Department of Statistics on Thursday. The data comes in at 0.1 percentage point ahead of the 0.5% forecast.

Meanwhile, core inflation – which excludes accommodation and road transport costs – was 1%, down from the 1.7% the year before. This brings Singapore’s inflation level to the highest it has been since May 2019, and coincides with forecasts of the index coming in at the lower end of a 1% to 2% range.

The boost to headline inflation comes from the 3.1% y-o-y increase in pump prices and private road transport costs in December, a steep increase from the 2.3% growth in November.

Aside from this, the inflation rate of the services industry expanded by 1.3% y-o-y, from 1.1% previously, reflecting an increase in expenditure on holidays and telecommunications and educations fees, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) note in a joint statement.

The prices of retail goods came in at 0.7%, up from the 0.5% in November, due to lower cost of clothing, shoes and recreation and entertainment services. Food inflation also edged up to 1.8%, from the 1.7% logged in the previous month.

On the contrary, electricity and gas costs were down 11.4%, continuing from its 11.8% slump in November. This comes amid the liberalisation of the open electricity market for households. Accommodation costs also inched down 0.1% from 0.2% in November, on the back of easing decline in rents.

Looking at the data, Maybank Kim Eng economists Chua Hak Bin and Lee Ju Yu say the latest uptick in the index is “consistent with the pick-up seen in most of Asia on the back of rising food and oil prices towards the end of 2019”. As such, they expect inflation to remain manageable this year since it has already bottomed out.

The MAS and MTI also note that external sources of inflation are likely to stay benign in the upcoming quarters. However, they warn of further volatility in oil prices and lower wage growth in the domestic labour market.

As such, they are looking at both headline and core inflation falling between 0.5% and 1.5% this year, as the “negative contribution of imputed rentals to headline inflation dissipates”.

Even so, UOB economist Barnabas Gan anticipates higher costs in labour-intensive service industries such as wholesale and retail trade, information and communication as well as accommodation and food services. This is a result of the tighter foreign worker quotes for the services sector and S pass holders that kicked in on Jan 1.

On a macro front, OCBC economist Howie Lee suggests that Singapore will face demand-pull inflation on its imports as a result of the tariff halted announced under the phase one trade deal between the US and China.

To this end, the MAS and MTI note that Singapore is “constrained by a subdued economic environment”.

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