Inflation feared to remain in the red as economic woes mount

CPI will be negative until mid-2016.

SIngapore’s consumer price index (CPI) is expected to remain stuck in the red in the first half of 2016, according to a report by DBS.

The headline inflation number for December is expected to register at -0.4% year-on-year, a slight improvement from -0.8% in the preceding month.

The long streak of deflation is blamed on the energy price slump, slowing global growth, and a slew of policy measures which have weighed down on domestic demand.

“The risks in the global economy and their corresponding impact on global energy and commodity prices have significantly lowered the inflation trajectory for the Singapore economy. Crude oil is already below USD 30/bbl given a ballooning supply glut. Deceleration in China is also adding more disinflationary pressure in the global environment. Absence a strong recovery in the US or the Eurozone, which is unlikely at this juncture, global deflationary pressure will continue to take hold,” DBS said.

Apart from these external drags, domestic wage pressure arising from the labour crunch has also dissipated given the economy’s dicey growth outlook. This is evidenced by the fact that retrenchment numbers have picked up last year as well compared to 2014.

“In this regard, we expect CPI inflation to remain in the red until the middle of this year, before base effect brings the headline number above water. As such, full year inflation is likely to average 0.5% in 2016, with risk on the downside,” DBS said.