Core, overall inflation both stay negative in May

Overall inflation was minus 0.8 per cent last month, mainly due to a larger decline in private transport costs, attributed to cheaper cars and petrol and the continued suspension of Electronic Road Pricing charges. ST PHOTO: KELVIN CHNG
Overall inflation was minus 0.8 per cent last month, mainly due to a larger decline in private transport costs, attributed to cheaper cars and petrol and the continued suspension of Electronic Road Pricing charges. ST PHOTO: KELVIN CHNG

Declines in consumer prices expected given reduced demand during circuit breaker

Core consumer prices fell again last month - the fourth straight month of contraction - but the decline was less than in April due to costlier food and smaller dips in services and electricity charges.

Analysts said inflation will be subdued for the rest of the year, but prices could inch up in the coming months as the circuit breaker eases and international travel picks up.

Core inflation - which excludes accommodation and private road transport costs - came in at minus 0.2 per cent last month, according to data out yesterday.

Overall inflation, which fell below zero in April for the first time since October 2016, came in at minus 0.8 per cent year on year last month.

This was mainly due to a larger decline in private transport costs, attributed to cheaper cars and petrol and the continued suspension of Electronic Road Pricing charges, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) noted.

United Overseas Bank (UOB) economist Barnabas Gan said the lower consumer prices last month were "unsurprising", given that circuit breaker measures lasted all month, with reduced consumer demand and cheaper transport.

The cost of retail and other goods fell more sharply last month than in April, declining 2.3 per cent year on year. This was due to steeper declines in the prices of medical products, household durables, and clothing and footwear.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said phase two of the reopening will ease the decline in retail prices, given pent-up consumer demand will likely lead to an increase in store visits.

But consumer spending will not return fully to pre-Covid-19 levels in phase two, given wage cuts and job losses, they added.

Ms Selena Ling, OCBC Bank's head of treasury research and strategy, said: "The emergence of a second wave of Covid-19 infections elsewhere... may also give local consumers second thoughts, even with the recent reopening of retail shops and restaurant dine-ins."

Meanwhile, the overall cost of services fell at a more gradual pace last month - minus 0.8 per cent year on year compared with minus 1.1 per cent in April - due to smaller declines in holiday expenses and airfares.

 
 
 
 

Food inflation edged up slightly, coming in at 2.2 per cent year on year last month, due to pricier non-cooked food.

UOB's Mr Gan said costlier food will likely persist in the coming months, contributing to the rise in imported inflation for the rest of the year.

Housing rents rose at a steady pace, with accommodation inflation increasing 0.5 per cent year on year last month.

The pace of decline in the cost of electricity and gas eased, as new subscriptions under the Open Electricity Market slowed.

External sources of inflation are likely to remain benign amid weak global demand in the quarters ahead, the MAS and MTI said, with oil prices expected to stay low for an extended period.

Subdued economic sentiment and a weak labour market here will dampen consumer demand, capping price increases for discretionary goods and services, and cost pressures are likely to remain low.

The MAS core inflation and overall consumer price index are forecast to average between minus 1 and 0 per cent this year.

A version of this article appeared in the print edition of The Straits Times on June 24, 2020, with the headline 'Core, overall inflation both stay negative in May'. Print Edition | Subscribe