Singapore's inflation expected to pick up in 2017
Consumer Price Developments in November 2016
In November, both CPI-All Items inflation and MAS Core Inflation were higher, at 0.0% and 1.3% respectively compared to -0.1% and 1.1% in the previous month. This mainly reflected the pickup in services and food inflation.
CPI-All Items inflation was 0.0% y-o-y in November
CPI-All Items inflation rose to 0.0% in November from -0.1% in October, led by a stronger pickup in services fees and food prices.
Overall services inflation increased to 1.5% in November from 1.4% a month earlier. The progressive phasing down of the Transitional Subsidies for MediShield Life premiums contributed to the rise in the cost of medical & dental treatment.
Meanwhile, air fares and telecommunication services fees declined. Food inflation also edged up to 2.0% from 1.9% in the previous month, due to a larger increase in the prices of non-cooked food items such as vegetables and fruits.
Private road transport cost rose by 0.2% after remaining unchanged in October, primarily due to the smaller drag posed by petrol pump prices. Accommodation cost fell by 3.8% in November, similar to the previous month, amid continued softness in the housing rental market.
CPI less imputed rentals on owner-occupied accommodation (CPI-ex OOA) rose by 1.0% in November
Inflation as measured by CPI less imputed rentals on owner-occupied accommodation (OOA) picked up to 1.0% in November from 0.8% in the preceding month, reflecting higher services and food inflation.
MAS Core Inflation rose to 1.3% in November
MAS Core Inflation rose to 1.3% in November from 1.1% in October, on account of the faster pace of increase in overall services and food prices.
Raffles Place, Singapore
On the external front, imported inflation is likely to rise mildly given ample supply buffers in the commodity markets and soft global demand conditions. Notwithstanding continued short-term volatility, global oil prices are expected to increase in 2017 from its trough this year. Domestically, overall cost pressures should be muted. Amid a pullback in hiring, conditions in the labour market have slackened. This will cap underlying wage growth, even as non-labour business costs have eased. The subdued growth environment will also constrain the extent of cost pass-through to consumer prices.
MAS Core Inflation is expected to average around 1% in 2016 before rising to 1–2% next year. Energy related components are projected to contribute positively to inflation in 2017, while the temporary disinflationary effects from budgetary measures will fade.
However, the increase in core inflation will be gradual, given the absence of more generalised demand-induced price pressures. CPI-All Items inflation has troughed and is projected to pick up to 0.5–1.5% next year, from around -0.5% in 2016, largely reflecting the rise in private road transport cost.
1. Government subsidies and support for MediShield Life premiums consist of permanent and transitional components. These measures lowered healthcare costs from November 2015 onwards, and dampened healthcare cost inflation on a year-ago basis from November 2015 to October 2016. The rise in healthcare cost inflation in November 2016 was due to the progressive phasing down of the Transitional Subsidies for MediShield Life premiums, as well as the effect of the low base in November 2015. The permanent component of the government subsidies and support for MediShield Life premiums is unchanged.
2. In October 2016, 1- and 2-room HDB households received a 1-month S&CC rebate, while 3-, 4- and 5-room HDB households received a 0.5-month rebate. No rebates were disbursed in November 2016.
3. The budgetary measures include the abolition of national examination fees for Singaporeans, the reduction in the concessionary foreign domestic worker (FDW) levy, and government subsidies and support for MediShield Life premiums.
4. The cost of private road transport is projected to rise in 2017, largely as a result of the expiry of the road tax rebate for petrol vehicles, the upward revision of car park charges with effect from 1 December 2016, and higher petrol prices.