Core consumer prices fall for tenth straight month in November

Core consumer prices fell for the tenth straight month last month, amid a pandemic-induced economic downturn that weighed on domestic demand, although the extent of deflation eased slightly.

Core inflation, which excludes accommodation and private road transport costs, came in at minus 0.1 per cent year on year last month, slightly above the minus 0.2 per cent seen in October, said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

Market expectations for core inflation to be minus 0.1 per cent last month were right on the money, according to a median forecast of economists polled by Reuters.

The continued fall in prices is the longest since 1991, the earliest period for which such core inflation data are available on the Singapore Department of Statistics website.

Singapore's core prices previously fell for nine consecutive months in 2008 and 2009, during the global financial crisis.

United Overseas Bank senior economist Alvin Liew said that while falling consumer prices may still persist this month, pockets of inflation from food, communications and vehicle costs could continue to cushion the deflationary effects from other categories.

He added that demand for year-end local holidays may also lead to a temporary increase in demand and push up prices of services.

The long streak of falling prices came as no surprise.

DEFLATION

Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said that during a recession, consumers cut back on spending and firms may reduce prices to mitigate the fall in business, resulting in deflation.

CIMB Private Banking economist Song Seng Wun said prices are tied to business and consumer sentiment. "If businesses are willing to hire and invest, wages will go up, which will lead to more spending."

Instead, Singapore has been seeing less spending and falling prices over the past 10 months.

Meanwhile, overall inflation rose to minus 0.1 per cent year on year last month, from minus 0.2 per cent the previous month.

The slower rate of decline in prices last month was mainly due to a smaller fall in the costs of services and electricity and gas, as well as higher food inflation.

MAS and MTI said external inflation is likely to remain low in the quarters ahead amid weak demand conditions in key commodity markets and continued spare capacity in Singapore's major trading partners.

However, core inflation is forecast to turn "mildly positive" next year, with demand for some domestic services gradually picking up and the disinflationary effects of government subsidies introduced this year fading.