Deflation, then versus now: Is Singapore in crisis as consumer prices fall?

CPI hit a six-year low in October.

Singapore officially entered its twelfth consecutive month of deflation in October, after the Consumer Price Index (CPI) fell to -0.8%. This marked the largest fall in headline prices since the Global Financial Crisis six years ago, and also represented the longest stretch of deflation since the last deflationary period from June to December 2009.

Although the headline numbers look dire, UOB analysts argue that there is no reason to be overly worried about deflation in Singapore. Unlike during the GFC, the current deflationary trend is caused mainly by lower oil prices and government initiatives.

“During the financial crisis, consumer prices in Singapore fell from both the lack of consumer demand as well as corporate/business price-cutting in the aftermath of the global financial crisis. Moreover, practically all segments in the consumer basket declined as well,” UOB said.

In contrast, only a select few segments in the consumer basket experienced price declines in the past few months.

“It was either due to the intentional measures from the government to cool prices, or a reflection of the lower global oil prices. In October, headline prices remained in the contraction mode as the government’s administrative measures to cool the prices of housing and cars continued. Looking into the details, private road transport cost fell 2.3% y/y, while accommodation cost declined 3.0% y/y, the 15th consecutive month of contraction,” UOB said.