Deflationary levels ease in September, after seven months

This is a marginal improvement from the 0.3% contraction posted in August.

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Meanwhile, headline inflation – the measure of total inflation in the economy – came in flat, easing from the 0.4% dip seen in the previous month.

This follows a more gradual decrease in private transport costs, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) detail in a joint release.

The sector declined by 0.1% in September, narrower than the 2.3% plunge seen in August, due to a larger increase in the prices of cars.

Similarly, a slower take-up rate of new subscriptions under the Open Electricity Market depressed the cost of electricity and gas in September by 14.2%. The sector – which has been in the red for over a year – previously recorded a 14.6% decline in August.

In the same regard, the cost of services eased to -0.1% from -0.5% in August due to a steeper increase in the fees collected from telecommunications services as well as a drop in collections from services such as tuition.

Conversely, the cost of retail and other goods came in flat in September, with prices falling by 1.3% in both August and September.

This is as a larger decline in the prices of clothing, footwear and telecommunications equipment were broadly offset by larger increases in the cost of household durables as well as a smaller drop in the prices of personal care products.

Prices of accommodation and food were also flat with in both August and September. For instance, accommodation prices came in at 0.4% in both months as housing rents saw a similar pace of increase.

Likewise, a similar pace of increase in the prices of non-cooked food and food services saw food inflation coming in at 1.8% in both August and September.

Looking ahead, MAS and MTI expect inflation to average between -0.5% and 0% this year, before edging up next year.

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This is due to the low and weak demand conditions in Singapore’s key commodities markets as well as the persistence of negative output gaps in key trading partners, the MAS and MTI note.

On a domestic front, they expect cost pressures to remain subdued, as “the accumulated slack in the labour market will weigh in on wages,” the authorities point out.

Come 2021, core inflation is expected to average between 0% and 1%, while headline inflation falls between -0.5% and 0%.

This is as “the disinflationary effects of government subsidies introduced this year fades and demand for some domestic services gradually picks up,” MAS and MTI explain.

In this time, accommodation costs are slated to fall due in part to the decline in foreign employment while private transport costs are expected to rise modestly after the highly anticipated reduction in the supply of Certificates of Entitlements.

UOB economist Barnabas Gan shares similar sentiments. He adds that the inflation outlook for the rest of year will hinge on: (1) improving global supply conditions which can put a cap on the increase in food prices, (2) low oil prices to limit the cost of transportation, and (3) a relatively weaker labour condition which could pressure domestic consumption demand.

Gan has pencilled a 0.3% contraction in core and headline inflation for this year.

With Singapore’s economy preparing to transit into Phase 3 of its re-opening before the year end, Selena Ling who heads the treasury research and strategy team at OCBC Bank says there may be room for consumer spending to pick up.

“This could bode well for domestic prices to revert to positive territory in early 2021,” adds Ling who expects core CPI to come in between -0.3% and -0.2% year-on-year this year, before reverting to positive territory in 2021.