Singapore sinks into second month of deflation

Inflation registered at -0.2% in December.

Singapore sank into its second month of deflation in December, with the consumer price index registering a 0.2% decline last month following a 0.3% decline in November.

Data from the Ministry of Trade and Industry showed that the decline was mainly on account of base effects associated with fluctuations in car Certificate of Entitlement (COE) premiums.

However, UOB states that a few more months of headline “deflation” is to be expected due to the continued oil rout.

“But core inflation will remain elevated on the persistent domestic inflationary pressures imposed by the tight labour market due to the tighter foreign workers quota & higher levies imposed. We do not expect the headline deflation to change MAS’ current policy stance “of a modest and gradual appreciation of the S$NEER policy band.” However, if we see an accelerated moderation in core inflation in next few months, then there may be a risk that the MAS may ease it policy stance in the upcoming April 2015 monetary policy statement,” stated UOB.

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