Singapore not heading towards deflation

Despite muted price growth and market downgrades forecasts, experts at DBS expect headline inflation to recover to 1.1 percent in 2020 from a projected 0.5 percent this year.

Singapore is not moving towards deflation despite muted price growth and earlier market downgrades that caused concern regarding a negative inflation forecast for the end of 2019, reported Singapore Business Review citing DBS.

The forecast for CPI was initially lowered to 0.5 to 1.5 percent in February from the earlier forecast of one to two percent.

Another downward revision followed this in April which lowered the core inflation forecast to one to two percent from 1.5 to 2.5 percent previously.

Excluding private accommodation and transportation costs, core inflation has consistently been on a downward trend to 0.08 percent in August from 1.9 percent in December amid the lower cost of electricity due to the Open Electricity Market’s nationwide launch.

Inflation will probably remain in positive territory this year despite muted price growth over the past few months.

“Our economist expects headline inflation to recover to 1.1 percent in 2020 from a projected 0.5 percent this year. Overall, CPI and core inflation have averaged 0.6 percent year-on-year and 1.3 percent respectively in the first eight months of the year. They are likely to end the year close to the floor of their official forecast ranges,” said Philp Wee, DBS FX strategist.

As a response to the subdued inflation levels, analysts are waiting for the Monetary Authority of Singapore (MAS) to ease up monetary policy as an aid to the slowing economy.

“The fact that core inflation remains persistently below the medium-term historical average of just under two percent may persuade MAS to loosen monetary policy in its upcoming policy meeting,” said Barnabas Gan, UOB economist.

Wee, meanwhile, believes MAS will slightly adjust the Nominal Effective Exchange Rate (NEER) policy band to 0.5 percent annually from the present rate of one percent, with the mid-point and width remaining untouched.

“We do not expect the MAS to abandon the modest and gradual appreciation path for its policy band. According to our model, the SGD NEER is still fluctuating within the stronger half of its band,” he added.

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg