SINGAPORE (May 26): Singapore’s headline and core inflation continued their decline, falling deeper into the red in March.

Core inflation, which registers inflation levels excluding accommodation and private transport costs came in at -0.3%, slightly below the -0.2% posted in March, according to the consumer price index (CPI) released by the Department of Statistics on Tuesday. 

Meanwhile, headline inflation – the measure of total inflation in the economy – came in at -0.7%, a significant downward easing from the 0% registered the month before. 

This marks the first time the metric has fallen into the red since October 2016, following falling global oil prices and subdued economic growth.

April 2020’s reading comes from a substantial decline in the cost of private transport, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) note in a joint statement. 

The sector had posted a sharp contraction of -5.5%, from the -0.3% logged in March, following a drop in car and petrol prices. A further drag came from the suspension of electronic road pricing charges during the circuit breaker which kicked off on April 7.

In the same vein, services inflation saw a decline of -1.1%, from the -0.7% logged in the previous month. This comes amid a reduced consumption of these activities following the imposition of the circuit breaker restricting the operations of non-essential activities.

Similarly, the cost of retail and other goods fell gradually to -1.6%, from March’s -0.9%, following declines in the prices of telecommunication equipment and personal items such as travel goods.

Meanwhile, electricity and gas costs narrowed its decline to -5.2%. While an improvement from the -6.2% logged in March, April’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 came in flat, as housing rents rose at a steady pace, presumably as more Malaysians sought temporary accommodation in Singapore following the extension of the movement control order.

The cost of food bucked the trend, increasing 2.1% from 1.5% following larger increases in the prices of non-cooked food. This comes amid disrupted global supply chains complicating the procurement of imported food. Conversely, inflation in prepared meals remained broadly unchanged, the data showed.

Looking ahead, the MAS and MTI expect inflation to remain subdued at its previously forecast range of -1% and 0% in 2020. 

This is due to the lower oil prices that are expected to weigh on the prices of the energy-related components in the metric, the authorities note.

Aside from this, international measures to contain the Covid-19 outbreak have led to supply chain disruptions, which could put some upward pressure on imported food prices, they add.

On a domestic front, they expect cost pressures to remain low, as “the implementation of safe distancing measures and weaker labour market conditions will dampen consumer demand, thereby capping price increases for discretionary goods and services”.

United Overseas Bank (UOB) economist Barnabas Gan chimes in, saying he expects “a path of deflation for Singapore’s consumer prices in the year ahead”.

“Notwithstanding the phased easing of Singapore’s circuit breaker measures, we expect that only around 20 – 30% of Singapore’s retail stores are operational during phase 1, suggesting that a majority of retail outlets remain shuttered,” he stresses.

Gan also expects the republic to feel the strain of falling tourism spending as tourist-oriented industries face sharp reductions in activities as restrictions remain.

OCBC Bank economist Howie Lee, however, imagines “pockets of inflationary pressures to start manifesting from next month”, even as headline inflation hits a trough in 2Q20.