SINGAPORE (Nov 26): Singapore’s headline and core inflation eased in October, contrary to economists’ expectations that they would hold steady.

Headline inflation – the measure of the total inflation in the economy – came in at 0.4%, down from the 0.5% recorded in September, according to the consumer price index (CPI) released by the Department of Statistics on Monday.

Meanwhile, core inflation – which excludes accommodation and road transport costs – was 0.6%, down from the 0.7% from the month before.  This brings Singapore’s inflation level to the lowest it has been since March 2016. 

The declines come from 12.5% y-o-y lower electricity and gas costs, steepening from September’s 8.3% fall. This comes from lower electricity prices following the launch on the Open Electricity Market (OEM).

Aside from this, the inflation rate of the services industry slid to 1.2% y-o-y, from 1.4% previously, reflecting a slower increase in expenditure on holidays, education and medical and dental treatments, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) note in a joint statement.

The cost of retail goods came in at 0.8% – the same level it was at in September, while food inflation edged up to 1.7%, from the 1.6% logged in the previous month.

Private road transportation inflation was at 1%, a significant increase from the 0.5% in September. However, accommodation costs were down 0.4% following the 0.5% decline in September.

For now, the MAS and MTI note that external sources of inflation are likely to stay benign in the upcoming quarters. However, they warn of possible volatility in oil prices.

At the same time, a slight softening in labour market conditions is expected to lower wage growth this year and in 2020. MAS and MTI further observe that non-labour costs such as retail rents should stay subdued, and any cost pass-through to consumers would be constrained by the weaker economic environment.

Given this, MAS and MTI expect full-year core inflation to come in at the lower end of 1-2% official forecast range, and headline inflation to be around 0.5%. 

Next year, they are looking at both core and headline inflation averaging between 0.5 – 1.5%.

Based on the latest CPI figures, UOB economist Barnabas Gan is downgrading his 2019 headline inflation estimates to 0.5%, from 0.6% previously, while maintaining his expectation of core inflation at 1.2%.

Going forward, he expects the index to have some upside risks from the low base effects on electricity prices, a reduction in cost of employment in the services sector from the reduction of the dependency ratio from 40% to 38%, and a possible dissipation of imputed rentals.

In this light, he expects headline and core inflation to come in at 1% and 1.2% respectively in 2020.

Maybank Kim Eng Research economists Chua Hak Bin and Lee Ju Ye are looking at a headline inflation of 0.9%, and core inflation of 1.2% in 2020

“We expect inflationary pressures to stay muted in 2020 as growth recovers at a sluggish pace and wage growth moderates” they observe.