Saturday, 26 December 2015

Inflation stays negative for 13th straight month

By Chia Yan, Min Economics Correspondent, The Straits Times, 24 Dec 2015

Inflation stayed in negative territory for the 13th straight month in November, amid the soft housing rental market and low oil prices.

Economists say Singapore is not at risk of sinking into deflation, but they note that the deepening oil price slump and tepid global growth might prompt the central bank to ease the appreciation of the Singdollar against its trade-weighted basket of currencies next year.

The consumer price index, a measure of headline inflation, fell 0.8 per cent in November from the same month last year.

This marks the longest stretch of negative inflation Singapore has experienced since the global financial crisis.

Economists do not regard this run of falling prices as "deflation", a term reserved for a more sustained and entrenched economic problem with often dire results.

This bout of negative inflation is largely the result of cheaper oil, along with loan curbs that have dampened both the property and car markets.

Last month's fall was slightly more than economists' estimates of a 0.7 per cent decline, and follows a fall of similar magnitude in October's consumer price index.

Private road transport costs slid 1.7 per cent in November over the same month last year, compared with a steeper 2.3 per cent decline in October, as petrol pump prices ticked upwards.

Accommodation costs fell 3 per cent, similar to the decline in the previous month, reflecting the soft housing rental market.

Overall services inflation edged down to 0.7 per cent from 0.8 per cent in October, mainly reflecting the lower cost of healthcare services following the introduction of MediShield Life.

Food inflation also moderated to 1.6 per cent last month from 1.8 per cent in October, on account of a slower rise in the prices of non-cooked food and restaurant meals.

This kept a lid on the Monetary Authority of Singapore's (MAS) core inflation measure, which strips out accommodation and private road transport costs to better gauge everyday expenses. It came in at 0.2 per cent last month, from October's 0.3 per cent.

Government forecasters expect core inflation to pick up gradually next year. It is tipped to come in at between 0.5 per cent and 1.5 per cent, compared with around 0.5 per cent for the whole of this year.

Oil prices are expected to remain low next year, said the MAS and Trade and Industry Ministry in a joint statement yesterday.

Food prices might come under pressure from the ongoing El Nino phenomenon, but this will be tempered by the availability of abundant food stockpiles, they added.

ANZ economists Ng Weiwen and Glenn Maguire said the tepid global growth outlook, low oil prices and increased labour market slack mean that inflation is unlikely to head towards long-term average levels next year and could even come in below the MAS forecasts.

If that happens, the central bank might act to further slow the Singdollar's appreciation against a trade-weighted basket of currencies, they noted.

The MAS uses the exchange rate as its main monetary policy tool, to strike a balance between inflation from overseas and economic growth. A stronger currency helps counter inflation by making imports cheaper in Singapore dollar terms, while a weaker Singdollar helps boost growth by making exports cheaper in foreign markets.








Factory output slides for 10th straight month
By Marissa Lee, The Straits Times, 25 Dec 2015

Factory output contracted again last month and at a rate that exceeded the already gloomy market expectations yet again.

Production fell 5.5 per cent in November from the same month last year - the 10th straight month of decline and far worse than the 3 per cent contraction tipped by economists polled by Bloomberg.

"This is the longest period of contraction that we have observed since our data started in 2003," said UOB economist Francis Tan.

The last long-drawn slump was during the global financial crisis when industrial production slumped for six months to March 2009 before making a sharp rebound once demand picked up.

"But the current downtrend is a mix of both lower global demand and labour market restructuring issues," Mr Tan noted.

November's headline number was hit hard by weak activity in the electronics and transport engineering sectors, according to Economic Development Board data yesterday.

If the volatile biomedical manufacturing sector was excluded, output fell 6.4 per cent from a year ago.

Chemicals was the only one of Singapore's six manufacturing clusters to expand last month.

Transport engineering output fell 11.2 per cent from a year ago, dragged down by a 20.1 per cent contraction in marine and offshore engineering and a 20.7 per cent contraction in land transport engineering.

The marine and offshore engineering segment was hit hard by tumbling oil prices. Brent crude oil, the international benchmark, reached an 11-year low of US$36.04 on Monday.

The oil market's prolonged uncertainty forced many customers to delay taking ownership of the oil rigs and specialised vessels they had ordered, said CIMB Private Bank economist Song Seng Wun.

Electronics output, which makes up about a third of all factory activity here, fell 11.1 per cent last month, as all segments except data storage and other electronic modules and components registered lower activity.

But economists were also optimistic that factories would get busier in the second half of next year when a more stable China is expected to anchor an Asian recovery.

Mr Song also junked notions that Singapore's manufacturers are becoming less of a growth pillar as the economy restructures.

"Singapore is still seen as an attractive place for manufacturers, despite the relatively high costs of getting their factories up and running," he said.

The electronics cluster attracted the largest fixed-asset investment commitments of $1.5 billion in the third quarter, mainly from the semiconductor segment.

"Rather than the populist argument of being less reliant on manufacturing, it is critical to recognise this ongoing undercurrent called the 'servitisation' of manufacturing, which refers to the integration of manufacturing with services," said ANZ economist Weiwen Ng.


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