Business

Inflation slows to 0.5%

Despite steadily rising prices, central bank's neutral stance unlikely to shift

Overall consumer prices here rose 0.5 per cent last month from June last year, slowing from the 1.4 per cent year-on-year increase seen in May, figures from the Department of Statistics showed yesterday.

This was due in part to the timing of the disbursement of service and conservancy charge rebates, which dragged down the cost of housing maintenance and repairs.

But there was also a slowing in private road transport inflation to 3 per cent last month from 6.1 per cent in May, mainly due to a fall in car prices and smaller petrol price increases.

The central bank's core inflation measure - which excludes price changes for cars and accommodation as they are influenced more by government policies - rose 1.5 per cent last month, lower than the 1.6 per cent increase in May due to lower services and food inflation.

Food inflation eased to 1.4 per cent last month from 1.5 per cent in May, as the rate of increase in the prices of non-cooked food items moderated.

Prices of prepared meals continued to rise at a stable pace.

Services inflation fell to 1.3 per cent last month from 1.4 per cent in May, due to a drop in telecommunication services fees.

Last month's data makes it the seventh straight month of steadily rising consumer prices.

Economists have said the rising inflation numbers are unlikely to shift the central bank's neutral monetary policy stance.

For the first half of the year, headline inflation rose 0.7 per cent while core inflation was up by 1.4 per cent.

By household income groups, headline inflation for the lowest 20 per cent income group fell by 0.1 per cent in the first half of the year, compared with the same period a year ago.

For the middle 60 per cent and highest 20 per cent income groups, inflation rose by 0.6 per cent and 1 per cent respectively over the same period.

During the first half, all three income groups experienced higher food and petrol prices, as well as tuition and other fees.

Healthcare service costs, road tax, electricity tariffs and parking fees also increased from the same period a year ago.

However, accommodation costs and bus and train fares fell for all three income groups.

The Monetary Authority of Singapore and Ministry of Trade and Industry said yesterday they are maintaining their forecast for core inflation to come in at 1 per cent to 2 per cent this year, and for headline inflation to be between 0.5 per cent and 1.5 per cent.

They said the projected pickup in inflation is not so much due to demand-induced price pressures, but more due to a rise in energy prices and impact of administrative price increases, such as the rise in water tariffs and service and conservancy charges.

U-Save rebates, which have also been increased and will partially offset the impact of higher water prices, are not taken into account in the consumer price index.

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

IncomefoodMonetary Authority of Singapore