Deflation set to intensify in 2015 as oil prices plunge

After falling into deflationary territory in Q4.

Singapore’s headline consumer price index is projected to fall further in 2015,after it fell into deflationary terrtiroy for the first time in years in the fourth quarter of 2014.

“The fall in headline CPI is likely to intensify alongside declining oil prices—we estimate a passthrough
of around 30% of global oil price declines into Singapore’s energy CPI. Headline inflation looks set to enter deflationary territory in 4Q, effectively delivering an increase in real incomes to consumers into the new year,” stated JPMorgan.

Here’s more from the report:

That said, we continue to think that MAS core inflation is the more important measure from a policy perspective. We also look for core inflation to edge lower through 2015, reflecting the effects of easing industrial rental inflation, softer commodity prices, and lower pass-through of wage inflation into the CPI.

Indeed, the momentum in core prices has been sliding through 2H14. With financial conditions tightening, we think this moderation in core inflation—which looks likely to undershoot the central bank’s 2%-3%oya forecast in 2015—should give the MAS space to adopt a less hawkish stance, supporting a move in the S$NEER toward the lower edge of the policy band through 2015.