SINGAPORE – Singapore’s core inflation turned positive in February for the first time in a year, as the costs of food and services rose, according to data out on Tuesday (March 23).
Core inflation, which excludes accommodation and private road transport costs, rose to 0.2 per cent compared with the same month last year. This was a leap from the minus 0.2 per cent in January.
Overall inflation also picked up, to 0.7 per cent last month, from 0.2 per cent in January. The increase was driven by higher private transport inflation.
The figures exceeded the predictions of analysts polled by Bloomberg, who had expected core inflation to rise to 0.1 per cent, and overall inflation to reach 0.6 per cent.
Private transport costs rose to hit 4.2 per cent in February, up from 1.9 per cent the month before. This was due to a stronger pickup in car prices and a smaller decline in petrol prices, noted the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).
Services costs also increased, reaching 0.5 per cent and reversing the decline of 0.3 per cent in January, on the back of higher inflation of tuition and other fees, while outpatient services costs saw a smaller decline.
MTI and MAS noted that the Government had introduced subsidies for the treatment of respiratory illnesses at public health preparedness clinics and polyclinics from Feb 18 last year, as part of Covid-19 response measures.
“These subsidies exerted a smaller downward drag on the year-on-year inflation of outpatient services in February this year compared with previous months and should completely cease to weigh on inflation from March,” they said.
Meanwhile, food inflation also edged up to 1.6 per cent from 1.5 per cent in January, as the price of non-cooked food registered a steeper increase. Prices of prepared meals rose at a pace similar to that in January.
However, the cost of electricity and gas declined at a slightly faster rate, at minus 9.8 per cent, on the back of a small increase in gas prices.
The cost of retail and other goods also saw a faster rate of decline, at minus 1.9 per cent last month, compared with minus 1.3 per cent in January.
This was mainly due to sharper reductions in the prices of clothing and footwear and personal effects, MAS and MTI said. Prices of medicines and health products fell in February as well.
Accommodation inflation was unchanged at 0.5 per cent as housing rents continued to rise at a steady pace.
In the quarters ahead, external inflation is likely to pick up amid the recovery in global oil prices, MAS and MTI noted.
Notably, Brent crude oil prices have risen further since the fourth quarter of last year, supported by output cuts among Opec+ members.
“However, continuing negative output gaps in Singapore’s major trading partners should cap the extent of the increase in underlying global inflation,” they said.
They added that on the domestic front, cost pressures are expected to stay low, as wage growth and commercial rents are likely to remain subdued.
“Core inflation is forecast to be mildly positive this year, as higher oil prices lead to a pickup in electricity and gas tariffs, and the disinflationary effects of government subsidies introduced in 2020 fade,” MAS and MTI said.
“Some components of domestic services inflation are projected to continue to increase, in tandem with the economic recovery.”
They expect core inflation this year to average 0 per cent to 1 per cent.
“The forecast range for overall inflation is being reviewed given the recent sharper-than-expected increases in the prices of the non-core items,” they said, adding that a revised forecast range will be released in MAS’ upcoming monetary policy statement in April.
Barclays economist Brian Tan said: “With the worst of the Covid-19 pandemic seemingly behind us and light increasingly visible at the end of the tunnel as more of the population is vaccinated, the MAS is unlikely to ease its foreign exchange policy settings.
“Underlying export momentum remains solid, in our view. Labour market conditions are also improving, even if they remain notably weaker than their pre-coronavirus levels.”
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