Singapore faces further deflationary pressure – UOBC

Economist at UOB Group Barnabas Gan assessed the recent inflation figures in Singapore.

Key Quotes

“Singapore’s consumer prices fell 0.4% y/y (+0.6% m/m nsa) in August, marking its sixth straight month of deflation. Core prices also declined 0.3% y/y in the same month, albeit a smaller contraction versus July’s -0.4% y/y.”

“Deflation unsurprisingly persisted in August 2020 given lower oil prices, amid a lacklustre consumer demand and a non-existent tourism spending. Lower prices in clothing & footwear continued (17th straight month of decline), while transport prices softened for its 5th consecutive month.”

“Official rhetoric by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) continued to highlight a “subdued” inflation outlook in 2020. Official outlook for both headline and core inflation has been kept unchanged at an average of between - 1.0% and 0.0% in 2020.”

“Note that improving global supply conditions may cap the increase in food prices going forward. Low oil prices will likely persist into 2020/2021, amid relatively weaker labour condition which could pressure domestic consumption demand.”

“As such, we continue to expect deflationary pressures to persist for the rest of this year. 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. We keep our full-year headline and core inflation forecasts at -0.3% in 2020.”