Singapore: Deflation seen unabated in H2 2020 – UOB

Economist at UOB Group Barnabas Gan reviewed the latest inflation data in Singapore.

Key Quotes

“Singapore’s headline consumer prices fell 0.5% y/y (0.0% m/m nsa) in June 2020, marking its fourth straight month of deflation. Core prices also fell by 0.2% y/y over the same period (similar to the -0.2% y/y print in May 2020).”

“Deflation unsurprisingly persisted in June 2020 given the lacklustre domestic demand and lower oil prices. Across the segments, transport costs fell for its third straight month by 3.1% y/y in June, led by a decline in global oil prices even as Brent oil contracted 35.4% y/y in the same month. Falling demand for retail goods and services have also dampened other price segments such as Clothing & Footwear (-3.2% y/y), Recreation & Culture (-2.9% y/y), and Miscellaneous Goods & Services (-1.9% y/y).”

“Official rhetoric by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) as released in the accompanying inflation report continued to highlight a ‘subdued’ inflation outlook in 2020.”

“We continue to expect deflation pressures to persist in the second half of 2020. The mix of falling domestic and tourism-led demand, coupled with low oil prices for the rest of 2020, are formidable headwinds against consumer prices. Higher food prices, which account for 21.1% of the total CPI basket, may well be insufficient to inject any sizeable uptick in overall consumer prices for the year ahead. With the anecdotal evidence pointing at a resurgence in COVID-19 cases in some of Singapore’s key trading partners, the risks of tightening social restrictions seen across parts of Asia could suggest that any return of inbound tourism in Singapore may be off the table for the foreseeable future.”