For the first time in five years, Singapore is experiencing deflation as the consumer price index (CPI) went into negative territory, the first negative reading since December 2009. The CPI fell to -0.3 per cent year-on-year in November, down from 0.1 per cent in October, said the Department of Statistics on Tuesday (Dec 23). Private road transport cost decreased by 7.0 per cent, after the 5.6 per cent decline in October, largely due to the high base of car prices a year ago. Petrol pump prices also fell at a faster pace of 4.3 per cent compared to a decline of 1.6 per cent in October, the Ministry of Trade and Industry (MTI) and Monetary Authority of Singapore (MAS) said in a joint news release. Pump prices eased by 4.3 per cent, and together with falling car prices, they led to a 7 per cent decline in private road transport costs. Accommodation cost fell 1.2 per cent, extending the 1.0 per cent correction in the previous month - a result of the soft housing rental market. Food inflation rose to 2.9 per cent from 2.8 per cent in October, mainly due to price increases for non-cooked food items and prepared meals. Services inflation moderated to 1.4 per cent from 1.7 per cent in the preceding month, as holiday travel cost fell and a smaller increase in household services cost and medical treatment fees. Core inflation – which excludes changes in the price of private road transport and accommodation – fell to 1.5 per cent year-on-year in November, down from 1.7 per cent the previous month. This was largely due to the smaller increase in services fees. Consequently, core inflation is likely to stay firm and is expected to average 2 to 2.5 per cent this year and 2 to 3 per cent next year, while CPI-All Items inflation is expected to come in at 1 to 1.5 per cent this year and 0.5 to 1.5 per cent in 2015. DEFLATION NOT SURPRISING AND COULD CONTINUE: ANALYSTS According to economists, the slump in global oil prices pulled down headline inflation in Singapore. Global crude oil prices have fallen in recent months to about US$60 per barrel on Tuesday, as a result of weaker demand and reluctance on the part of oil producers to cut supply. They also said the headline inflation of -0.3 per cent did not come as a surprise as consumer prices in Singapore have been easing in recent months - as a result of effective monetary policy, as well as measures to curb rising property and car prices. Economists added that Singapore could see deflation again for the month of December in view of falling oil prices. UOB has projected inflation to come in at -0.5 per cent while OCBC is looking at a range of between 0 and -0.2 per cent. Should deflation persist, it can hurt the economic outlook. United Overseas Bank economist Francis Tan said: One of the common-talked about potential negative impact of deflation or a deflationary spiral is that if consumers think that prices of one item is going to be cheaper or lower tomorrow, you will not want to spend today. “That is going to affect domestic consumption right now, that will be the detrimental effect of deflation, and that is actually what we are seeing in the Eurozone. However, economists said the chances of Singapore falling into a deflationary spiral are slim. Head of Treasury Research and Strategy at OCBC Bank Selena Ling said: “If you look back at 2009, that was on the back of the great financial crisis and even then, Singapore only saw six months of negative CPI prints. “What is really different today is you do not have an ongoing global recession story or financial crisis, apart from the rouble crisis that is brewing in Russia. And I think on top of that, if you look at domestic labour market, because of the whole economic restructuring story, actually you have a very tight labour market, so I suspect you are going to see continued wage cost inflation. The increase in wage cost could be passed to consumers in the form of more expensive food and services. Economists said as a result, core inflation, which strips out accommodation and private transportation costs may see an uptick next year. - CNA/ac/xk channelnewsasia/news/business/singapore-experiences/1545462.html
Posted on: Sat, 27 Dec 2014 01:35:10 +0000
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