Inflation in 2015 lowest in almost 3 decades

December's consumer price index down for 14th straight month amid lacklustre growth
By Chia Yan Min, The Straits Times, 26 Jan 2016

Singapore's consumer prices fell the most in almost three decades last year amid very low oil prices, lacklustre economic growth and the soft housing rental market.

Still, most economists do not expect the central bank to deploy monetary policy to combat this long funk in growth and inflation.

They expect the Monetary Authority of Singapore (MAS) to maintain its Singapore dollar policy instead of acting to slow the currency's appreciation - barring a major shock or signs of recession.

Data out yesterday showed December's consumer price index - which measures inflation - slid 0.6 per cent over December 2014.

This was its 14th straight month of contraction and Singapore's longest stretch of negative inflation since the global financial crisis.

It brought inflation for all of last year to negative 0.5 per cent - the first full-year negative inflation reading here since 2002, and the lowest in 29 years, noted DBS economist Irvin Seah.

Falling private road transport and housing costs were the main drags on inflation last month. But their impact on household daily expenses was limited. The MAS core inflation measure, excluding these two items to better gauge everyday expenses, rose to 0.3 per cent last month from 0.2 per cent in November.

For the whole of 2015, core inflation came in at 0.5 per cent.

Households in the lowest 20 per cent income group experienced the largest fall last year. This group experienced a negative 1.1 per cent inflation rate, compared with 0.3 per cent for the middle 60 per cent and 0.7 per cent for the top 20 per cent.

This was driven by lower accommodation costs and electricity tariffs for all income groups. The lowest 20 per cent also benefited relatively more from cheaper healthcare, while lower car prices aided households in the top 20 per cent.

Official estimates tip overall inflation of between negative 0.5 and 0.5 per cent this year. Core inflation is forecast at 0.5 to 1.5 per cent.

Economists say the outlook for inflation and growth remains muted but they look set to fall within MAS forecasts, so MAS is expected to keep its exchange rate policy unchanged at its next meeting in April.

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

Officials yesterday cited "significant uncertainty" over the outlook for global oil prices this year. In a joint statement, MAS and the Trade and Industry Ministry said they "will continue to closely monitor the developments in global oil prices and assess their impact on domestic inflation".