SINGAPORE: Singapore's headline inflation rate in July unexpectedly eased to a four-month low on lower transport costs, but a tight labour market could keep core inflation elevated in coming months.
The headline, all-items consumer price index (CPI) in July rose 1.2 percent from a year earlier, data showed on Monday, moderating from June's 1.8 percent rise and matching a 1.2 percent increase recorded in March.
The reading was well below the median headline inflation forecast of 2.1 percent in a Reuters poll, and was also below the lowest estimate of 10 economists surveyed.
The easing of the headline inflation rate was mainly due to lower private transport costs, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said in their joint press release of the CPI data.
Private road transport costs in July fell 1.6 percent from a year earlier, after rising 2.8 percent in June.
The decline was mainly due to a comparison against a high base from a year ago, when the prices of car permits surged, the MAS and MTI said.
Petrol prices rose at a slower pace while housing-related cost pressures remained subdued. The cost of accommodation was largely unchanged from the year before, after rising an annual 0.5 percent in June, the data showed.
The easing in housing and transport inflation reflects supply-side factors and comes as no surprise, said Jeff Ng, an economist for Standard Chartered Bank in Singapore. "All this has been pretty much anticipated already," Ng said.
"I think services inflation continues to be a concern for the central bank, so I think we continue to see that the MAS continues its modest and gradual appreciation of the Sing dollar NEER," Ng said. He added that the MAS was likely to stick with its current policy stance at its next policy review due in October.
Inflation in the services sector quickened to 2.5 percent year-on-year from 2.2 percent in June. Saktiandi Supaat, head of FX research at Maybank in Singapore, said the central bank was unlikely to ease monetary policy in October.
"Not likely for now. Growth seems O.K. still," he said.
Still, there were some dissenting views.
Tim Condon, head of research Asia for ING, said lower-than-expected headline inflation may increase the chance of the MAS easing its policy stance in October.
The MAS' core inflation measure in July picked up to 2.2 percent from a year earlier, from 2.1 percent in June, but below the median forecast in a Reuters survey of 2.4 percent.
The MAS core inflation measure excludes changes in the price of cars and accommodation, which are influenced more by government policies.
The MAS, Singapore's central bank, reiterated on Monday that it expects core inflation to come in at 2-3 percent in 2014, adding that domestic cost pressures, stemming in particular from a tight labour market, are likely to remain the primary source of inflation.
Singapore's government has been working to reduce a politically-unpopular reliance on foreign labour as part of a push to increase the economy's productivity, but the move has led to a tight labour market, putting upward pressure on wages.
In its joint statement with the MTI, the central bank also reiterated that CPI-all items inflation is projected to come in at 1.5-2.0 percent in 2014.
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