Chart of the Day: Analysts trim inflation forecasts as price growth crashes to 30-year low

Inflation is likely to remain negative throughout the year.

Singapore's headline consumer price index (CPI) booked a sharp -1.6% year-on-year contraction in May, marking the lowest inflation reading in almost 30 years. Following the sharp downward slide, analysts at DBS Vickers expect headline inflation to remain negative throughout 2016, revising earlier expectations that the headline number will revert to positive territory by the third quarter.

"These expectations will have to be pushed back to the tail-end of the year or to early-2017. Plainly, there is downside risk to our full-year inflation forecast of -0.2%," DBS said.

DBS expects the recent easing in car loan regulations to lift the private transport CPI index, with its impact most likely to be felt from June onwards.

“The silver lining in this set of inflation figures is that core inflation has edged up to 1.0% on-year, from 0.6% previously. This should dispel all the talk about a deflationary spiral in the economy. Growth is weak and inflation is stuck in the negative. But the economy is at no risk of diving into deflation, period,” DBS said.

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