Singapore: October inflation lower due to electricity tariff cuts – Nomura

FXStreet (Delhi) – Research Team at Nomura, notes that the Singapore’s headline CPI inflation fell to -0.8% y-o-y in October from -0.6% in September, below consensus expectations (-0.4%) and closer to our forecast (-0.6%).

Key Quotes

“Private road transport deflation moderated slightly to 2.3% from 3.2% in September while accommodation cost deflation was 3.0% from 2.9% in September. Excluding private road transport and accommodation costs, the Monetary Authority of Singapore’s (MAS) measure of core inflation moderated to 0.3% y-o-y in October from 0.6% in September, also below consensus (0.6%) and closer to our forecast of 0.4%.”

“As we expected, the moderation was mainly because of electricity tariff cuts, which deepened fuel and utilities deflation to 12.7% from 8.5% in September. Elsewhere, services (0.8%) and food inflation (1.8%) were stable.”

“Excluding various CPI components that are affected by supply-side factors like lower commodity prices and budgetary measures (including fuel and utilities), we estimate core inflation was still significantly higher than the published figure of 1.4% y-o-y, down slightly from 1.6% in September. We continue to believe underlying inflation pressures are fairly sustained because of labour cost pressures from the government’s efforts to improve productivity growth.”

“The published core inflation figure will likely remain low at around current levels for the rest of the year – we maintain our headline CPI inflation forecast of -0.4% and core inflation forecast of 0.5% for full-year 2015, which is similar to MAS expectations of around -0.5% and 0.5%, respectively.”

“For 2016, our projections show the core inflation trajectory pointing firmly upward on base effects from supply-side factors and our expectations that firms will eventually be forced to pass labour costs on to consumer prices. We expect headline and core inflation to rise to 0.3% and 1.0% in 2016, respectively, similar to the MAS forecast ranges of -0.5-0.5% and 0.5-1.5%.”
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