SINGAPORE (June 23): Singapore’s Consumer Price Index-All items inflation has fallen year-on-year by 1.6% in May, which is slightly over three times more than the 0.5% decline reported the month before.

In a joint release today, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) mainly attribute the decline to base effects associated with the timing of the disbursement of Service & Conservancy Charges (S&CC) rebates which are disbursed in May, July and October this year. The negative contribution from the rebates in May will be reversed in June, add the institutions.

Another significant factor contributing the fall in headline inflation is the contraction of accommodation costs by 6% in May, compared to the 0.9% fall in the previous month.

Private road transport costs were 7.6% lower compared to the 7.1% decline in April this year due to a larger fall in petrol pump prices that reflect the relatively high base in May last year. To recap, petrol pump prices rose 4.3% month-on-month last year in May, and this was followed by a brief recovery in global oil prices.

Food inflation has also edged down marginally to 2.2%, marking only a 0.1% difference from 2.3% in the previous month, as increases in the price of prepared meals moderated.

It is only services inflation that has reflected a pickup, rising to 1.5% from 0.7% a month earlier. On the account of this, MAS Core Inflation has also risen to 1% in May from April’s 0.8%, as it excludes the costs of accommodation and private road transport.

States Citi Research in a Thursday note: “To the extent that headline CPI y-o-y correlates to changes in the nominal effective exchange rate (NEER), today’s fall in headline CPI should not be supportive of further SGD NEER strength in the very near term.”

“We see little impact on MAS policy in October, as MAS’s forecasts in the April Macroeconomic Review show that the dip in 2Q inflation was largely anticipated, and inflation should be broadly in line with MAS’s expectations for the rest of 2016.”

The research house says it will look to the industrial production (IP) numbers due on Friday for further clarity on the trajectory of 2QFY16 GDP and MAS policy.