The decline in Singapore’s core inflation deepened in December 2020, while the headline measure improved.

Core inflation – which gauges price increments to sectors other than accommodation and private transport – was down by -0.3% year-on-year, according to the Consumer Price Index (CPI) released by the Department of Statistics (Singstat) on Jan 25.

This is a slip from the -0.1% posted in November and follows a larger decline in services costs as well as food inflation.

Meanwhile, headline inflation – the measure of the total inflation in the economy – came in flat, easing marginally from the -0.1% seen in the month before.

This came in response to a sharp 1.2% rise in private transport costs, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) detail in a joint release. The segment’s latest performance deviates from its -1.3% decline in November, the authorities note.

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An interesting performance was seen in the services segment which saw costs fall sharply to -0.8% in December, from -0.2% in November. This follows smaller increases in public transport fares, fees from telecommunication services as well as a steeper decline in tuition and other fees.

Prices of most of the other segments declined in December, except for accommodation where the inflation level remained flat at 0.3%. This comes as housing rents rose at a pace similar to that seen in November.

The cost of retail and other goods saw the sharpest fall to -1.2%, from -2.0% in the month before. This is on account of due to smaller declines in the prices of clothing & footwear and personal care products as well as increases in the costs of recreational & cultural goods and telecommunication equipment.

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Prices for electricity and gas inched down to -6.7% from November’s -6.8%. This comes as the sector – which has been in the red for over a year – saw an easing in the take-up of new subscriptions under the Open Electricity Market.

Similarly, food inflation dipped marginally to 1.6% following smaller increases in the prices of non-cooked food and restaurant meals. The segment had previously hit 1.8% in November.

Touching on the inflation levels for 2020, MAS and MTI note that both the core and headline price gauges had averaged at -0.2%.

Looking ahead, the authorities expect core inflation to average between 0% and 1%, while headline inflation is expected to fall between -0.5% and 0.5%.

“Core inflation is forecast to turn mildly positive this year, as the projected rise in oil prices from a year ago leads to a pickup in the oil‐related components of the CPI and the disinflationary effects of government subsidies introduced in 2020 fade,” the authorities say.

On a domestic front, cost pressures are slated to stay low as wage growth and commercial rents are slated to remain subdued. 

For instance, accommodation costs are expected to fall as the decline in foreign employment will continue to weigh on rentals, MAS and MTI note.

Meanwhile they note that private transport costs could rise modestly on the back of improving demand, while some other components of domestic services inflation could possibly increase gradually, in tandem with the recovery in the economy. 

Selena Ling, who heads the treasury research and strategy department of OCBC Bank shares similar sentiments. She expects 2021 headline and core CPI to fall at 0.7% and 0.5% year-on-year respectively. 

But first, she estimates that the first positive year-on-year headline CPI will come in at 0.1% as early as January 2021. “For 2021, mild reflationary prints, partly due to the low base in 2020 during the Covid-induced Circuit Breaker period and domestic recessionary conditions,” Ling explains.

To this end, she does not expect the MAS to recalibrate monetary policy from the current zero appreciation slope for the Singapore Dollar Nominal Effective Exchange Rate (S$NEER). 

“MAS is likely to err on the side of caution, like most other central banks, in view of the economic uncertainties regarding resurgent Covid waves prompting additional lockdowns globally, at least until growth recovery prospects are more stable,” mulls Ling.