SINGAPORE: Singapore’s June core inflation measure hit a more than two-year low as electricity and gas prices declined, firming bets among economists that its central bank will ease monetary policy in October..

Core inflation – which excludes the costs of accommodation and private road transport – rose 1.2 per cent year-on-year in June compared with May’s 1.3 per cent, said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) in a press release on Tuesday (Jul 23).

This was in line with a Reuters poll, and the lowest print since March 2017 when core inflation grew at the same rate.

READ: Singapore economic growth slows to 0.1% in Q2, lowest in a decade

“The risk of a monetary easing has definitely risen,” said Mr Edward Lee, an economist at Standard Chartered.

“But this is not unexpected. We do expect a bottoming during this time.”

Core inflation is the Monetary Authority of Singapore’s (MAS) preferred price gauge in setting monetary policy.

The central bank’s core inflation measure excludes changes in the prices of cars and accommodation, which are influenced more by government policies.

Consumer Price Index (CPI)-All Items inflation moderated to 0.6 per cent year-on-year, from 0.9 per cent in May. The median forecast in a Reuters poll was for all-items CPI to rise 0.7 per cent.

Apart from lower core inflation, this also reflected a fall in private road transport inflation and a larger drop in accommodation costs, said MAS and MTI.

The cost of private road transport rose slightly by 0.2 per cent year-on-year in June, moderating from the 1.5 per cent increase in the previous month, mainly on account of a smaller rise in car prices and a decline in petrol prices.

Services inflation eased to 1.7 per cent year-on-year in June from 2 per cent in May.

This largely reflected smaller increases in holiday expenses and airfares, as well as a larger fall in telecommunication services fees.

The cost of electricity and gas declined by 4.8 per cent year-on-year in June, steeper than the 4 per cent drop in the preceding month.

This was due to the dampening effect of the nationwide launch of the Open Electricity Market on electricity prices.

Meanwhile, the overall cost of retail items increased by 0.4 per cent year-on-year, slightly lower than the 0.5 per cent rise in May.

The slower rate of inflation was primarily due to a larger decline in the prices of telecommunications equipment, medical products and goods for recreation and entertainment, which more than offset a faster pace of increase in the prices of personal care products as well as a smaller decline in the prices of clothing and footwear, said MTI and MAS.

READ: IMF cuts forecast for Singapore’s 2019 economic growth to 2%

Accommodation costs fell at a slightly faster pace of 1.1 per cent year-on-year in June as compared to the 1 per cent decline in the previous month, while food inflation remained unchanged from May at 1.4 per cent.

External sources of inflation are “likely to be benign” for the rest of the year, said MAS and MTI.

“An acceleration in inflationary pressures is unlikely against the backdrop of slower GDP growth, uncertainties in the global economy, as well as the continuing restraining effects of MAS’ monetary policy tightening in 2018,” said the two bodies.

They expect core inflation to come in near the mid-point of the forecast range of 1 to 2 per cent in 2019.

Private road transport costs could pick up slightly this year as compared to last year, while accommodation costs are likely to decline at a slower pace this year, they added.

READ: Commentary: What slowing growth means for the man in the street

Singapore’s economy grew at its slowest annual pace in a decade in the second quarter, preliminary data showed on July 12, raising bets that a technical recession and monetary policy easing could be just around the corner.

In a Reuters poll done after the release of the second-quarter data, seven of 11 economists said they expected the MAS to loosen its exchange-rate monetary policy in its next policy statement, due in October, with the other four forecasting no change.

READ: What Singapore’s slowing GDP growth means for the jobs market

Since then, two additional economists have called for a monetary easing amid a dim economic outlook.