06/16/2015
Singapore / Inflation
Housing, transport, and healthcare are driving the negative inflation of the headline consumer price index (CPI).
Singapore’s headline consumer price index (CPI) inflation has been below zero for the past six months. In April, it fell to minus 0.5% on-year from minus 0.3%. The main drivers of negative inflation continue to be housing, transport, and healthcare, which together account for 47% of the overall CPI basket.
There may be more downward pressure on prices going forward. The Land Transport Authority announced in May that certificate of entitlement (COE) quotas for the May-to-July quarter will be increased by 42%. As private transport costs account for 11.7% of the CPI basket, a decline in COE premiums would have a significant impact on inflation.
Barring any significant uptick in oil prices, inflation will likely remain negative for several more months. We now expect inflation for the year to be negative (minus 0.1%). With global growth still subdued, inflation will remain low at 1.3% in 2016.
Negative inflation will undoubtedly stoke debate about ‘deflation’. But as our 2016 forecast makes clear, we do not expect persistently falling prices. Importantly, less volatile “core” inflation remains positive and, as with most of the world’s central banks, core inflation is the key barometer that the Monetary Authority of Singapore (MAS) tracks when considering policy.
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