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Singapore Inflation Eases in May on Lower Oil Prices

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by Donavan Lim

Singapore inflation rose slower than expected in May, mainly driven by lower oil prices and softer growth in accommodation cost.

CPI-All items index eased to 5.0 per cent year-on-year in May, down from 5.4 per cent in April, The Ministry of Trade and Industry (MTI) reported Monday.

Overall price increase for domestic oil-related items also eased from 8.9 per cent in April to 7.8 per cent in May, as a result of the recent weakness in global oil markets.

Meanwhile, accommodation cost fell to 9.0 per cent in May from 12.7 per cent in April, mainly due to the timing of the disbursements of rebates for services and conservancy charges for HDB households.

In contrast, private road transport cost soared to 10.3 per cent in May as compared with 8.2 per cent in April due to a sharper spike in COE premiums and, hence, car prices.

Together, accommodation and private road transport costs accounted for close to two-thirds of CPI-All Items inflation last month.

Services and food inflation rose marginally to 2.9 per cent and 2.5 per cent respectively in May.

Excluding the costs of accommodation and private road transport, the Monetary Authority of Singapore (MAS) Core Inflation was stable at 2.7 per cent, as the lower contribution from prices of oil-related items was offset by slightly stronger services and food inflation.

Going forward, the MAS expects All-Items inflation to moderate, but accommodation cost will remain the largest contributor as leasing contracts continue to be renewed at higher rentals, especially in the HDB segment.

UOB economist Chow Penn Nee agrees, noting that 2H2012 average inflation may settle at around 4 per cent.

“Oil prices have slid and COE prices have come down slightly on the easing of COE supply cuts. Part of the lower headline inflation in the latter part of the year could also be due to the high base effect from last year,” Chow said.

“There are inflationary pressures however, with accommodation costs continuing to remain high. Wage increases for lower wage workers, as well as for workers in the service industry such as health care and bus drivers, could see a surge in business costs. A tight domestic labour market and higher wage costs will also be exacerbated by the restriction of foreign labour inflow, set to kick in July,” the UOB economist added.

On monetary policy, Chow said the easing inflation will give room for MAS to maintain its current monetary policy of SGD NEER strength, given the inflationary pressure stemming from the tight labour market.


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