Consumer prices to possibly bottom out next year

Inflation is predicted to range from 0.5 to 1.5%.

Headline Consumer Price Index (CPI) remains in deflation although moderating to -0.2%y/y (from -0.3%y/y in August), which sparks belief it has already bottomed.

In its joint statement, MAS and MTI believed that headline “inflation has troughed and is projected to pick up to 0.5–1.5% next year, from around -0.5% in 2016, largely reflecting the rise in private road transport cost.”

UOB analyst Alvin Liew, meanwhile, expects that headline deflation to average -0.8% in 2016, while core inflation to average 1.0% in 2016. Looking forward into 2017, however, the analyst sees headline CPI to return to positive 0.5% inflation while core CPI inflation to average a higher 1.4%.

On an unadjusted basis, the September price developments were flat (0.0%m/m) after a 0.5%m/m increase in August. This was the 23rd consecutive month of price declines and Liew said it is on track to achieve the 2-year milestone of headline CPI deflation in October.

MAS Core inflation eased slightly to 0.9%y/y in September (from 1%y/y in August, and in line with median Bloomberg forecast).

MAS core inflation excludes accommodation and private transport costs.

"Inflationary forces were present but continued to be overwhelmed by declining housing & private transport costs," said Liew.

Food prices rose 2.2%y/y in Sep (from 2% in Aug) while education costs (+3.3%y/y), healthcare (+0.6%y/y), recreation & culture (1.2%y/y) all added positively to CPI in September.

Services inflation eased to 1.5%y/y (from 1.7% in Aug). The key deflationary forces in Singapore continued to be private road transport and the bigger dampening force of accommodation costs which declined -3.7%y/y (from -3.6% in August).

Other items also recorded price declines in September such as clothing & footwear (-1.2%y/y), fuel & utilities (-9.8%y/y), public road transport (-0.7%y/y) other transport (-1.6%y/y), personal care services (-0.9%y/y) and even medical equipment (-0.3%y).