Business

CPI up 0.4% as August inflation is at modest levels

Trend likely to persist due to tepid job market and subdued economic environment

Inflation stayed at modest levels last month, though the cost of some services - including healthcare and education - continued to increase slowly.

The trend is likely to persist, with the tepid job market and subdued economic environment expected to keep prices in check over the rest of the year.

The consumer price index - the main measure of inflation - edged up 0.4 per cent last month compared with August last year, according to Department of Statistics data released yesterday.

This was slightly below estimates of a 0.6 per cent rise and also down from 0.6 per cent in the preceding month.

The slower pace of consumer price increases largely reflected a fall in private road transport inflation and, to a lesser extent, a moderation in food and retail price increases, said a joint statement from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI).

Private road transport inflation fell to 2.6 per cent last month from 3.5 per cent in July.

This came as one-year road tax rebates expired in August 2016, outweighing the combined impact of a steeper increase in petrol prices and a smaller decline in car prices.

Services inflation was 1.4 per cent last month - unchanged from July - as a rise in holiday expenses was offset by smaller increases in the costs of medical and dental treatment as well as education services.

Core inflation - which strips out accommodation and private road transport costs - was 1.4 per cent last month, slightly lower than July's 1.6 per cent.

MAS and MTI said oil prices have risen from their trough and are likely to average higher this year, while administrative price adjustments such as the hike in carpark charges and service and conservancy charges will also contribute this year to "a temporary increase in inflation".

However, the lacklustre labour market and subdued economic environment will continue to limit the extent to which businesses pass on higher costs to consumers.

ANZ chief economist for South-east Asia and India Sanjay Mathur said the inflation data "reflects the ongoing weakness in the labour market which, in turn, has suppressed domestic demand... Clearly, the transmission of stronger export activity to domestic demand has been muted".

Economists expect MAS to stand pat on its exchange rate policy at its review next month, in view of the latest inflation and growth numbers.

United Overseas Bank economist Francis Tan noted: "The central bank is not expecting runaway prices and, although current economic conditions are better than just a year ago, the weakness in the labour market will set a limit on cost-pushed inflation."

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