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Lower oil prices prompt lower inflation forecast for year

This article is more than 12 months old

Slower increase in cost of electricity and gas as overall inflation eases to 0.4%

Lower oil prices have prompted officials to lower their headline - or overall - inflation forecast for the year.

It is now estimated that overall inflation will come in between 0.5 per cent and 1.5 per cent, down from an earlier expectation of 1 per cent to 2 per cent.

The forecast for core inflation - this excludes accommodation and private road transport costs - remains unchanged at between 1.5 per cent and 2.5 per cent. This reflects the smaller weight of oil- related items in the measure, according to a joint statement from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) yesterday.

They added that the extent of overall price increases will be capped by greater market competition in several consumer segments, such as telecommunications, electricity and retail.

The forecasts came as official numbers showed that prices cooled in January.

Overall inflation eased to 0.4 per cent compared with the same month last year, down from 0.5 per cent in December.

This reflected a slower pace of increase in the cost of electricity and gas, which outweighed higher inflation in services.

Likewise, core inflation dipped from 1.9 per cent to 1.7 per cent.

The figures were lower than expected, with a Bloomberg poll of analysts predicting that headline inflation would hit 0.6 per cent with core inflation tipped at 1.8 per cent.

Maybank Kim Eng economist Chua Hak Bin said the drop in core inflation is likely to "provide some breathing space and take the pressure off for MAS in April to tighten monetary policy further".

He said inflation numbers across the region have been "benign", with slowing growth and cheaper oil reducing price pressures.

"Part of the reason for the collapse in trade and exports is that businesses are in a deep freeze on their investment plans," said Dr Chua, referring to ongoing trade tensions.

"We're all hoping that the US and China will come to some kind of trade deal in the coming weeks, if not months... If there is a deal, I hope some of these companies' business sentiment will reignite, which will lead to some recovery in business investments. Correlated with that is trade."

The cost of electricity and gas rose at a slower pace of 6.5 per cent in January, down from 14.6 per cent in December.

The overall cost of retail items rose by 1.4 per cent year-on-year, slowing from the 1.7 per cent increase in December.

Food inflation came in at 1.4 per cent, unchanged from December, while services inflation picked up from 1.5 per cent to 1.7 per cent.