Singapore Consumer Prices Post Smallest Drop in 14 Months

  • Central bank says inflation reached a trough in second quarter
  • MAS scheduled to make its next policy decision in October

Consumer prices in Singapore posted the smallest drop in 14 months in August, indicating negative inflation rates that have dogged the city-state since November 2014 may be nearing an end, figures from the statistics department show.

Key Points

  • CPI fell 0.3 percent in August from a year earlier, compared with a previously reported drop of 0.7 percent in July. The median estimate of 14 economists in a Bloomberg survey was for a 0.4 percent contraction in August
  • Prices rose 0.5 percent in the month
  • Core inflation, which excludes costs of accommodation and private road transport, rose 1 percent in August from a year earlier, compared to a median estimate of 1.1 percent

Big Picture

  • Consumer prices in the export-driven economy have been falling steadily for 22 months, mainly due to lower oil costs and government measures to rein in property prices. That’s presented a challenge to the Monetary Authority of Singapore, which uses the exchange rate as its main policy tool rather than interest rates. In April, the central bank eased its stance by moving to a neutral policy of zero appreciation in the currency. With weeks to go until the next scheduled meeting in October, speculation is mounting on what steps the MAS will take. The MAS said in July that headline inflation may turn positive this year, while the core measure will probably continue to rise.

Economist Takeaways

  • “The evolution of core inflation has thus far been consistent with current MAS policy settings,” Weiwen Ng, an economist at Australia & New Zealand Banking Group in Singapore, said by e-mail. “Our base view at present is for no change in policy at the upcoming MAS October policy review. While economic activity remains subdued, we do not see a significant deterioration in the near-term growth and inflation outlook.”
  • “Headline inflation is a lot less negative now,” Brian Tan, a Singapore-based economist with Nomura Singapore Ltd., said by phone. “All told, despite the fact that growth has been soft, MAS is going to need a much stronger justification to change policy.”

Other Details

  • Food prices, which make up 22 percent of the CPI, rose 2 percent in August from a year earlier
  • The biggest decline in prices on an annual basis was in the housing and utilities sector, which dropped 4.3 percent 
  • The MAS and Ministry of Trade and Industry said in a joint statement that inflation “troughed” in the second quarter and is projected to rise in coming months
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