Distortions weigh on Singapore's August inflation

Singapore August headline inflation fell to -0.8% y/y, below expectations. The larger-than-expected drop in the headline rate was driven by lower CoE prices on a year-earlier high base. This was exacerbated by one-year road tax rebates for petrol vehicles, resulting in 2.9% y/y decline in private road transport cost. 

The softness in the rental market also deepened in August, with the cost of accommodation falling 2.9% y/y. Core inflation rose 0.2% y/y. This miss was mainly owing to the free public transportation services around SG50 celebration, as well as retail discounts. 

"That said, core inflation is likely to be at the lower end of the Monetary Authority of Singapore's 0.5-1.5% forecast range. Even if core is artificially depressed by healthcare subsidies, utilities and administrative measures, the tight labour market will continue to keep core services inflation sticky. As such, the MAS is expected to stay on hold at the October MPS", says Barclays.