Singapore households see inflation ease further in H2 2015

Singapore’s consumer prices fell for a 14th straight month, extending the longest streak of declines in nearly three decades.

Selena Ling, head of treasury research and strategy at OCBC Bank, said: “This suggests that policymakers are cognizant of the downside inflation risks due to the crude oil price correction in the run-up to the April monetary policy review, but remains potentially hesitant to contemplate any policy shifts at this juncture”.

Accommodation costs were 3 per cent lower last month, marking the 17th consecutive month of contraction and reflecting the soft housing rental market.

From a year earlier headline inflation accelerated to 1.7%, up from 1.5% in the September quarter, while core inflation – more influential on financial markets given its bearing on domestic interest rate movements – fell back to 2.0%, the lowest level seen since the June quarter of 2012.

Falling private road transport and housing costs were the main drags on inflation last month.

MAS Core Inflation, which excludes the costs of accommodation and private road transport, rose to 0.3 per cent in December from 0.2 per cent a month ago, on account of higher services inflation.

For the whole of 2015, core inflation came in at 0.5 per cent.

Economists surveyed by Bloomberg had forecast an annual rate of inflation of 1.6 per cent, and a quarterly increase of 0.3 per cent.

The report is based off price movements in a set basket of goods and services commonly purchased by metropolitan households. At this stage, the release further noted, the forecasts for CPI-All Items inflation and MAS Core Inflation for 2016 remain at -0.5-0.5 per cent and 0.5-1.5 per cent respectively.

“Falling petrol prices, subdued spending and intense competition in the retail sector are contributing to only muted price pressure, which should leave the door open for an RBA rate cut should the economy require it over the next few months”, he said.

However, as today’s CPI numbers confirm, underlying inflation is no constraint on the RBA’s scope to cut rates, if they deem it necessary and useful for supporting growth. A stronger currency helps counter inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar helps boost growth by making exports cheaper in foreign markets.

The Aussie has been trading in a fairly wide band in recent weeks, fluctuating by up to US2¢.Global oil price volatility has rocked equity and currency markets and the Australian currency has been bounced around by the turbulence. In a joint statement, MAS and the Trade and Industry Ministry said they “will continue to closely monitor the developments in global oil prices and assess their impact on domestic inflation”.