SINGAPORE’S core inflation stayed unsurprisingly negative for the fifth straight month in June at -0.2 per cent year on year, unchanged from May, according to the Department of Statistics consumer price index (CPI) figures on Thursday.

Both core and headline inflation figures for June were in line with economists’ estimates. Headline inflation saw its third month in negative territory at -0.5 per cent year on year, compared with -0.8 per cent in May, mainly due to a smaller decline in private transport costs.

Private transport costs fell 4.4 per cent in June, slowing from May’s 6.8 per cent decline. Accommodation inflation was unchanged at 0.5 per cent.

Core inflation, which excludes accommodation and private road transport, stayed steady as a steeper drop in the cost of services was offset by higher food inflation, as well as smaller declines in the costs of retail and other goods, and electricity and gas.

“This is a familiar theme which is expected to continue,” said ANZ head of Asia research Khoon Goh, as supply disruptions cause food prices to rise but retail demand remains low.

Uncertainty over jobs has made households cautious, which “will not only keep a lid on price increases for non-essential items, but is also likely to lead to further discounting to spur demand”, he added. He expects core inflation to fall further to -0.4 per cent in the next two months, but does not see a deflationary threat.

Services costs fell 1 per cent, steepening from May’s 0.8 per cent fall, due to larger estimated declines in holiday expenses and airfares.

Food was the only core inflation category where inflation was positive, edging up to 2.3 per cent, from 2.2 per cent in May. But pressure on food prices may become less acute as global supply chain disruptions abate, said OCBC Bank head of treasury research and strategy Selena Ling.

While enhanced social distancing and hygiene measures could raise costs for firms, the amount of slack in the economy means firms will likely be cautious about passing these costs on to consumers, she added.

The cost of retail and other goods fell 1.8 per cent. UOB economist Barnabas Gan highlighted the loss of tourism-led spending but said that if Singapore’s efforts to establish travel ”green lanes” bear fruit, there could be a gradual return of tourism in the second half of 2020 or in 2021.

Electricity and gas prices fell 3.9 per cent, as new subscriptions in the Open Electricity Market slowed.

In a joint statement, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry maintained the exact same inflation outlook as in the previous month, expecting inflation to remain subdued.

External sources of inflation are likely to stay benign amid weak demand while at home, subdued sentiment and labour market weakness will dampen consumer demand.

”Cost pressures are likely to remain low as some degree of spare capacity in the economy emerges,” they said.

The official full-year forecast range for both core and headline inflation in 2020 remained at between -1 per cent and zero.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye find it unclear if inflation has bottomed out, despite Phase Two of reopening having started on June 19. Previously unavailable prices, such as those for air tickets and holiday expenses, might become available in July and show a larger-than-average drop, they said.

Economists expect the MAS to hold foreign exchange policy steady at its next policy meeting in October. Said Mr Goh: ”Further monetary policy easing, via a recentring lower of the policy band, will only be on the table if there were a renewed downturn in economic activity.”


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