Private transport costs pull inflation down

They fell from +2.6% in August to +2.1% this month.

Private transport cost inflation, which fell from +2.6% in August to +2.1%, dragged Singapore's headline inflation down, analysts from Maybank Kim Eng said.

According to the bank, car prices fell more steeply and petrol prices moderated.

This month's headline inflation, which includes accommodation and private transport services, hit +0.4%. Meanwhile, core inflation picked up to +1.5% due to the increase in services inflation.

"Dissipation of the base effect related to the expiry of one-year road tax rebates in August last year (which led to a temporary increase in private transport inflation from Aug-16 to Jul-17) also dampened the year-on-year inflation reading," analysts from Maybank Kim Eng said.

Meanwhile, prices of food, housing and utilities, healthcare, and education grew at the same pace as they did in August.

Prices of clothing and footwear, which fell from +1.6% to +0.5%, and household durables, which fell from +1.2% to +0.8%, led the declines.

Meanwhile, the cost of communication showed the steepest increase in 2.5 years from +0.1% to +1.3%.

Maybank Kim Eng analyst Chua Hak Bin said, "This increase outweighed the dampening effects from cheaper air fares and smaller increase in holiday expenses."

Here's more from Maybank Kim Eng:

Based on year-to-date numbers (+0.6%), headline inflation will likely come in lower than expected in 2017, posing downside risks to our forecast of +0.9%.

MAS recently reduced its headline and core CPI forecast for 2017 to +0.5% and +1.5% respectively. For 2018, we expect headline and core inflation to rise to +1.2% and +1.7% respectively, driven by a cyclical economic recovery and rising services and commodity prices.

Measures such as the second phase of water price hike in Jul-18 by 15% and LTA’s latest reduction of supply COEs will also increase prices.

LTA is reducing the COE supply for all vehicles in the Nov-Jan quota period (by -5% per month) to cut vehicle growth rate to zero starting Feb-18 (from current +0.25% annual growth). We expect MAS to normalize and shift to a “slight appreciation bias” in the April 2018 meeting.