Inflation held firm at 1.3% in May

Higher retail and food inflation offset steep declines in electricity and gas costs.

Singapore’s core inflation, excluding the costs of accommodation and private road transport, remained unchanged at 1.3% in May from April, according to data from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

This was due to higher retail and food inflation which broadly offset a steeper decline in the cost of electricity and gas.

Despite this, consumer price index (CPI-All Items) inflation edged up to 0.8% YoY in April, rising from 0.8% in March, driven by a more modest decline in accommodation costs, as well as higher private road transport, retail and food inflation which outweighed a larger fall in electricity and gas costs.

The cost of electricity & gas fell 4% YoY in April, extending the 2.8% decline in the previous month due to the dampening effect of the phased nationwide launch of the Open Electricity Market (OEM) on electricity prices.

Food inflation inched up to 1.4% YoY in May, from 1.3% in April, largely due to a faster pace of increase in the prices of prepared meals. MoM, overall food prices rose 0.2%, mainly due to an increase in the prices of hawker and restaurant meals. Non-cooked food items were also more expensive on account of a pickup in the prices of vegetables, fish & seafood and dairy products, which outweighed a fall in the prices of meat and bread & cereals.

The cost of private road transport grew 1.5% YoY in May, higher than the 1.1% increase in the preceding month, mainly on account of a steeper rise in car prices which more than offset a smaller increase in petrol prices.

Meanwhile, the overall cost of retail items recorded a larger 0.5% YoY growth in May compared to the 0.2% rise recorded in April. “This mostly reflected an upturn in the prices of personal effects, as well as smaller declines in the costs of recreation & entertainment goods, clothing & footwear and medical products, appliances & equipment,” the agencies explained.

Accommodation costs fell at a more moderate pace of 1% YoY in May compared to the 1.4% drop in the previous month. This reflected a slower pace of decline in housing rentals, as well as a stronger pickup in the cost of housing maintenance & repairs, MAS and MTI noted.

Services inflation remained unchanged from April at 2%, as a stronger pickup in holiday expenses was offset by a larger decline in the cost of telecommunication services fees, as well as smaller increases in airfares and recreational and cultural services fees.

According to MAS and MTI, external sources of inflation are likely to be benign for the rest of 2019. Whilst global oil prices have risen in recent months, they are currently not expected to exceed last year’s average.

“On the domestic front, labour market conditions remain firm and will support moderate wage increases, such that unit labour costs should continue to rise. However, an acceleration in inflationary pressures is unlikely against the backdrop of slower GDP growth, uncertainties in the global economy, as well as the continuing restraining effects of MAS’ monetary policy tightening in 2018,” the agencies highlighted.

Inflation is expected to come in near the mid-point of the forecast range of 1–2% in 2019, whilst CPI-All Items inflation is expected to average 0.5–1.5% in 2019, with private road transport costs projected to be largely unchanged from 2018, whilst accommodation costs are likely to decline at a slower pace in 2019.