Inflation eases in June, but cost pressures persist

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Inflation slowed down more than expected last month after a recent high in May to reflect the smaller increases in private road transport and services costs, the latest official Consumer Price Index (CPI) data showed.

But analysts cautioned that last month’s easing does not point to a softer outlook for inflation, which will remain steady for the rest of the year as domestic cost pressure persists.

In June, all-items inflation dropped to 1.8 per cent, below the 2.4 per cent forecast in a Reuters’ poll and down sharply from May’s 2.7 per cent — which was the highest since March last year — due mainly to a smaller jump in car prices, while major categories such as services costs saw more moderate inflation.

“Services inflation eased to 2.2 per cent from 2.5 per cent in the preceding month owing to lower contributions from the cost of holiday travel, telecommunication and medical insurance,” said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

As a result, core inflation slowed for a second straight month to 2.1 per cent after May’s 2.2 per cent, but a drop to below 2 per cent will be unlikely this year, OCBC economist Selena Ling told TODAY.

Core inflation, which excludes accommodation and private road transport costs, is commonly regarded as a reflection of the wage cost pressure, and the MAS and the MTI retain their 2 to 3 per cent forecast amid the tight labour market at home.

The official forecast for all-items inflation is being kept at 1.5 to 2.5 per cent, as the Government expects overall prices to ease in the second half due to lower imputed rentals and car prices, with Certificate of Entitlement quotas expected to rise more than expected.

The trend was visible last month, when private road transport costs — which account for 11.6 per cent of the CPI basket — edged up by 2.8 per cent, down from May’s 8.1 per cent surge.

Meanwhile, accommodation inflation slowed to 0.5 per cent from 0.9 per cent in May, and is likely to remain stable going forward.