Pioneer Generation Package’s medical subsidies drove Singapore’s September CPI to its knees

They say it’s just a one-off negative impact.

Today's CPI print is yet another victim of the policy-induced volatility often seen in the city state's economic indicators.

This time around, the culprit seems to be the enhanced medical subsidies distributed as a part of the Pioneer Generation Package (PGP), says a report by HSBC.

The PGP is intended to provide assistance to the baby boomer generation, particularly those at lower and middle income levels. It came into force on September 1 2014, and entails generous subsidies at Specialist Outpatient Clinics and polyclinics. 

According to HSBC, the new subsidies imply at least an additional 50% off already subsidised services, as well as subsidies for general practitioners and dental clinics. It seems that this is limited to a one-off negative sequential impact on CPI, while the y-o-y numbers will be slightly impacted over the course of the next 11 months until the base effect wears off. 

Here’s more from HSBC:

Outside of the medical and dental components, there was a mixed picture for services costs. The communication sector saw a strong pick up in price momentum; however, other components such as 'education & stationery' and 'recreation &others' showed a deceleration in prices. 

Apart from the one-off introduction of healthcare subsidies, today’s print is a sign that the recent inflationary trend for Singapore remains largely in place, even if a tad softer. While core does seem to have lost steam over the past two months, it will likely see resumed moderate upward pressure in the near future as higher wages feed through to prices.