Singapore’s inflation eases in June on slowing car prices

Inflation in Singapore retreated in June as car prices rose at a slower pace, the Department of Statistics said on Wednesday (July 23).

The consumer price index (CPI) rose 1.8 per cent in June from a year ago, slowing from May's 2.7 per cent which was a 14-month high.

The rise in last month's CPI was well below analysts' forecast of a rise of about 2.4 per cent as the pace of price increases fell in most categories.



Private road transport cost edged up by 2.8 per cent in June, a smaller rise compared to the 8.1 per cent surge a month earlier, largely due to the sharp correction in Certificate of Entitlement (COE) premiums in May.

Analysts say expectations of more COE quotas for the rest of year would continue to dampen car prices and put downward pressure on headline inflation.

"The major factors are probably moderation in the car prices which jumped the month before with a slight increase in the COE quota… so that is really having a dampening effect on the inflation,” said Assistant Professor of Finance (Education) Aurobindo Ghosh from Singapore Management University’s Lee Kong Chian School of Business.

“On the other side, the main part which is sort of going up, but not by much, is the food prices. Food prices seem to have gone up, maybe because of the tight labour market and due to pass-through costs."

Food prices rose by 3.2 per cent in June, compared to 3 per cent in May. Other major CPI components such as accommodation, services also increased, but at a slower pace than in the previous month. 

Core inflation – which excludes changes in the price of private road transport and accommodation since these are influenced more by government policies – rose 2.1 per cent year-on-year in June, slower than May's 2.2-per cent gain.

"Core inflation higher than headline inflation shown in the June numbers itself also reflects that the story of our outlook for inflation in Singapore remains intact and that domestic cost pressures are likely to factor in and play a larger factor in the 2014 price outlook for Singapore. And going forward, for the second half of the year, we are likely to see this going to continue to be played out," said Alvin Liew, senior economist at United Overseas Bank.

Looking ahead, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said car prices are now projected to exert a slight drag on overall inflation, given the larger-than-expected increase in car COE quotas.

Consequently, CPI-All Items inflation is expected to come in at the lower half of the 1.5 to 2.5 per cent forecast range.

As for core inflation, MAS and MTI said it will likely stay elevated at 2-3 per cent in 2014.

Domestic cost pressures, particularly stemming from a tight labour market, are likely to remain the primary source of inflation as inflation in most of Singapore's key import source countries is expected to be modest.