SINGAPORE – Essential services, which include areas such as education, healthcare and domestic services, will be the main factor behind a rise in services inflation this year, said the Monetary Authority of Singapore (MAS) in its biannual macroeconomic review.
But overall inflationary pressures should remain in check, added the central bank in its report on Friday (April 26), where it noted lower global oil price projections for 2019 and the impact of liberalising the retail electricity market which has also pushed prices down.
To reflect these factors, the MAS core inflation forecast this year was revised down to between 1 per cent and 2 per cent in its April monetary policy statement, down from 1.5 per cent to 2.5 per cent previously.
The forecast range for headline inflation remains at 0.5 per cent to 1.5 per cent, after it was lowered from 1 per cent to 2 per cent in February, in view of a sharp decline in oil prices in the fourth quarter of 2018.
While core inflation for the first quarter edged down to 1.6 per cent in the first quarter compared to last year, services inflation picked up with the rise in bus and train fares last December.
On Friday, the MAS said: “Essential services inflation should pick up further when the increase in the non-concessionary foreign domestic worker levy takes effect from April 2019.”
“In comparison, healthcare subsidies under the Merdeka Generation Package will come into effect only in the latter half of 2019, with a limited disinflationary impact on services inflation this year,” it added.
Essential services inflation is estimated to be around 3 per cent in 2019, up from 2 per cent last year, and a firmer growth in unit labour cost for services-producing industries over the recent quarters is likely to filter through to services costs as well.
Overall services inflation is expected to come in above the 1.5 per cent recorded in 2018, said the MAS.
Other segments such as retail prices are likely to stay relatively flat this year, while private road transport costs are projected to be mostly unchanged and the pace of decline in accommodation costs should ease further.
Although global food prices are falling at a slower pace, import prices are unlikely to accelerate, the MAS said.
But it cautioned that price pressures may emerge for food categories affected by “transitory shocks”, such as a recent spike in fresh vegetable prices in China due to low harvest yields.
Another instance is the pick-up in prices of imported eggs, which rose close to 30 per cent year on year in January and February due to supply constraints in Malaysia.
Food inflation on the whole is expected to average higher than the 1.4 per cent in 2018.
The projected rise in non-cooked food prices and labour costs, on top of signs of pick-up in demand for prepared meals, are likely to translate to firmer inflation, said the MAS.
Meanwhile, the labour market is expected to remain firm in 2019 despite slowing economic growth, with wage growth projected to ease only slightly.
Employment growth broadened in the second half of last year, seeing gains spread across the trade-related, domestic-oriented and modern services clusters, said the MAS.
It added that both resident and overall unemployment rates edged up 0.1 per cent in the fourth quarter of last year, while retrenchments remained “broadly stable at a low level” in the second half of the year.
The number of job vacancies continued to rise in the fourth quarter as well, and vacancy rates suggest that “hiring intentions remained generally positive”, MAS added.