December inflation easing suggest government measures are making a dent

Housing prices, vehicle demand both moderating.

CPI inflation in Singapore unexpectedly eased in December to 1.5% y/y, reports UOB, compared to 2.6% y/y in November and consensus forecast of 2.0%.

Private road transport costs declined 2.8% y/y (from +3.4% y/y increase in Nov) after COE premiums eased in December. Additionally, accommodation costs increased at a slower pace of 2.9% y/y, from the 3.3% y/y increase recorded in November.

These trends suggest that government measures aimed at cooling prices in both sectors are finally having a noticeable impact, argued UOB.

"Inflation from accommodation and private road transport costs used to explain around 70% of headline inflation in the first three quarters of the year but in 4Q 2013, it dropped to just 33%," said UOB.

"This showed that the government’s administrative measures to cool housing prices and motor vehicle demand had finally been effective in moderating inflationary pressures in those segments," it added.

Core inflation (which excludes housing and private road transport) also moderated slightly to 2.0% y/y in December, compared to 2.1% a month ago, due to cheaper retail items such as clothing and footwear. For 2013, headline CPI inflation averaged 2.4%, a rate that is much lower than the average 4.9% inflation rate we saw during the 2011-12 period.