Here's why Singapore is safe from deflation for now

Core inflation still holds on at 1%.

After the city-state hit its 21st month of declines in consumer price index (CPI) with the private road transport and accommodation costs as primary suspects, the current situation could not be labelled as a deflationary spiral just yet, an analyst says.

The last time Singapore’s headline prices saw a stretched period of contraction was in 1975-1977--an agonizing 16 months of declining prices.

Based on the data released recently by the Department of Statistics, consumer prices dipped 0.7% YoY in July, falling 0.3% from the previous month.

UOB Analyst Francis Tan said the city-state's core inflation at 1% has held its stance even with a small dip from June's 1.1%.

"Although this is a slight drop from June’s 1.1% y/y, Singapore’s core inflation has been inching higher and higher since hitting a recent low of 0.17% in November 2015," Tan said.

Core inflation is derived from a consumer basket that excludes the costs of accommodation and private road transport.

He explained that a look at the major categories show that although the accommodation cost and car prices were lower than a year ago, the prices of household durables, education, and recreation/culture had been holding up.

More so, he added that the decline in prices were largely due to administrative measures applied on the two categories.

"In the current period of slower economic growth, Singapore’s core inflation had not contracted at all, and has been trending higher over the past few months," the analyst said.

He noted that the city-state would end the year with its core inflation averaging 1% on the back of an average headline inflation of 0.8%.

"We believe that the disinflationary effects of oil from 2015 will start to ease more as we proceed towards the second half of the year. In fact, global oil prices had risen nearly 40% since hitting a recent low in January this year," the analyst expounded.