Inflation rose 0.6% last month

Inflation inched up last month on the back of higher water tariffs and pricier retail items such as clothing and household goods. But the tepid job market and subdued economic environment are expected to keep prices in check for the rest of the year.

The consumer price index (CPI) edged up 0.6 per cent last month compared with July last year, according to Department of Statistics data yesterday. This was up from 0.5 per cent in June and slightly below economist expectations of 0.7 per cent.

Collectively, retail and water prices rose 1.2 per cent, reversing June's 0.2 per cent decline.

Water tariffs were raised by 15 per cent from July 1 as part of a phased 30 per cent increase over two years. The Government's U-Save rebates, which have been increased and partially offset the impact of higher water prices, were not taken into account in the CPI.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said higher water tariffs did not have a bigger impact on inflation because they accounted for a small 0.54 per cent weight in the CPI basket. But they noted: "There may, however, be second-round effects in August and September."

While water prices rose, the cost of electricity and gas moderated to increase 7.9 per cent last month, from a 19.1 per cent hike in June, on the back of lower oil prices.

Private road transport inflation came in higher at 3.5 per cent last month, compared with 3 per cent in June, due to a smaller decline in car prices.

Services inflation rose slightly to 1.4 per cent last month from 1.3 per cent in the previous month, reflecting an increase in telecommunication services fees following price declines in June.

Core inflation, which strips out accommodation and private road transport costs to better gauge everyday expenses, came in at 1.6 per cent last month, compared with 1.5 per cent in June.

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 to a temporary increase in inflation this year.

CIMB Private Bank economist Song Seng Wun said the rise of the sharing economy and e-commerce could have a dampening effect on consumer prices. He said: "These services have helped to bring down prices a bit."