Core inflation continues to sink in June

Most segments posted falling prices, albeit a moderated pace.

MAS core inflation dipped 0.2% YoY in June, unchanged from May, no thanks to a steeper drop in the cost of services, according to the Monetary Authority of Singapore and the Ministry of Trade and Industry.

Barnabas Gan, economist at UOB, stated that inflation fell at an "average pace" of -0.2% in the first half of 2020, down from +0.6% in the same period last year. "Deflation unsurprisingly persisted in June 2020 given the lacklustre domestic demand and lower oil prices," he added.

Costs of services fell more sharply due to larger declines in holiday expenses and airfares, whilst accommodation inflation was unchanged as housing rents rose at a steady pace.

This was offset by higher food inflation, which edged up due to an increase in the prices of non‐cooked food items. Costs of retail and other goods and electricity and gas also registered smaller declines

CPI‐all items inflation likewise slipped 0.5% YoY in June, compared to the 0.8% decline in the previous month. This moderated deflation reflects a smaller decline in private transport costs, which fell at a slower pace due to smaller declines in car and petrol prices.

The cost of retail and other goods also recorded a smaller decline as prices of clothing and footwear and telecommunications equipment fell at a more gradual pace. Cost of electricity and gas fell at a slower rate as the take‐up of new subscriptions under the Open Electricity Market (OEM) slowed.

Gan noted that the official report kept its rhetoric that "external sources of inflation are likely to remain benign", whilst lower oil prices will "weigh on the prices of energyrelated components in the CPI basket”. Similarly, food prices are also expected to see “upward pressure” given higher import prices led by supply chain disruptions seen to-date. 

"The mix of falling domestic and tourism-led demand, coupled with low oil prices for the rest of 2020, are formidable headwinds against consumer prices. Higher food prices, which account for 21.1% of the total CPI basket, may well be insufficient to inject any sizeable uptick in overall consumer prices for the year ahead," Gan said.