Singapore core CPI hits five-year low, opens door to easier policy

Singapore's annual core inflation in May hit a five-year low, data showed on Tuesday, giving the central bank leeway to ease monetary policy if economic growth disappoints in coming months. The Monetary Authority of Singapore's core inflation gauge in May slowed to 0.1 percent from a year earlier, the lowest reading since January 2010, when it fell 0.5 percent.
The drop in core inflation was mainly due to government measures in the budget that had an impact on the costs of services as well as food inflation, the MAS and the Ministry of Trade and Industry (MTI) said in a statement. "The striking decline in core inflation in Singapore will put the spotlight firmly back on the MAS, which has been arguing that underlying price pressures could tick up because of wage gains owing to a tight labor market," said Benjamin Shatil, an economist for J.P. Morgan in Singapore. "We see scant evidence of labour market price pressures in the inflation data, and we think MAS policy looks tight relative to the contained near-term inflation outlook," he said. Shatil added that the core inflation rate - which excludes costs of accommodation and private road transport - could dip into negative territory later this year along with the headline consumer price index.
Singapore's services inflation in May eased to 0.5 percent year-on-year from 1.1 percent in April. This was largely due to measures to reduce the concessionary foreign domestic worker levy and the waiver of national examination fees, along with a smaller rise in telecommunication services fees, the MAS and MTI said.
The MAS kept its 2015 core inflation forecast unchanged at 0.5 percent to 1.5 percent on average and headline inflation forecast steady at -0.5 percent to 0.5 percent. The all-items consumer price index fell 0.4 percent in May from a year earlier, after sliding 0.5 percent in April. May's slide in headline CPI marked the seventh straight month in which the all-items CPI fell from a year earlier, matching a similar streak from November 2001 to May 2002.
Annual headline CPI has been falling since November due to a slide in global oil prices in the second half of last year as well as falls in housing rents and private road transport costs. The MAS eased its exchange-rate based monetary policy in an unscheduled policy review in January, saying the inflation outlook had "shifted significantly" due to plunging oil prices. At its regular policy review in April, the MAS left policy unchanged, saying an improving outlook for global growth would underpin the trade-reliant economy.