What’s the reason behind Singapore’s record-breaking deflation?

The oil price slump is not entirely to blame.

Singapore entered its 18th consecutive month of negative inflation in April, the longest streak of deflation on record. Analysts note that while low oil prices are partly responsible for persistent deflation, broader domestic regulations are the bigger culprit behind the negative headline price growth.

“The slump in oil prices is certainly one of the key factors behind the negative inflation. But the slowdown in growth momentum and the impact of earlier macro-prudential measures on housing and car purchases are also having a significant impact on the headline number,” DBS said in a report.

DBS added that negative inflation may persist in the coming few months, as the excess supply in housing stock and the associated downward pressure on rentals imply that the housing consumer price index index may continue to fall.

“The growth slowdown that has further compounded the disinflationary pressure will likely become more pronounced in the coming months with the overhanging risk of a technical recession,” DBS said.

Meanwhile, Maybank Kim Eng noted that Singapore had experienced annual deflation in a number of years, particularly during economic recessions in 2002, 1998 and 1986. However, the recession in 2015 and 2016 are due mostly to lower global crude oil prices and cheaper housing and utilities as well as transport costs.

However, Maybank Kim Eng expects core inflation to pick up gradually in 2016 as the disinflationary effects of oil as well as budgetary and other one-off measures ease.

"Underlying inflationary pressure still exist contributed by higher food prices (most food supply are imported), upward pressure in labour cost (hence the need to boost labour productivity via automation or skill enhancement) and hence higher cost in services sector; which are all structural issues in nature,” Maybank Kim Eng said.