SINGAPORE'S consumer price index (CPI) fell 0.8 per cent in October from a year earlier, due to lower housing and holiday travel costs. The fall was slightly bigger than consensus expectations of a 0.4 per cent dip in October's prices from last year's relatively high base.

Deflation is not a worry - even though the CPI has shown year-on-year declines since April, these have been mild. October may, in fact, mark the bottom of this cycle, economists said.

 

Weaker consumer price numbers from November 2008 onwards mean that a sharper hike in the year-on-year inflation rate can be expected when November's CPI data is released.

 

HSBC economist Robert Prior-Wandesforde pointed out that Singapore is not unaccustomed to periods of falling prices, this being the third such bout since 1998.

 

He thought that falling prices 'reflect Singapore's dependence on imported food and energy items' and are 'part of Singapore's adjustment mechanism to exogenous shocks, acting to support real incomes and boost the competitiveness of the economy'.

 

The Monetary Authority of Singapore last week raised its inflation forecast for next year to between 2.5 and 3.5 per cent, after it was announced that valuations of Housing Board properties would be raised in January 2010.

 

In October this year, accommodation costs fell 4.7 per cent year on year due to lower electricity and gas tariffs. Excluding accommodation costs, October's CPI fell 1.1 per cent from a year back.

 

But electricity tariffs are now on the rise, and the October CPI showed a pick-up in inflation momentum month on month. Housing costs rose 1.9 per cent in October from September, which led in part to CPI rising 0.6 per cent from September.

 

Excluding accommodation costs, the CPI still rose 0.6 per cent in October from September due to dearer fruits, cooked food and fresh pork and vegetables, as well as higher holiday travel costs and pay for foreign maids. On a seasonally adjusted basis, the CPI rose 0.3 per cent in October from September, including and excluding its accommodation component.