Singapore’s Retail Sales Plunged Deeper in May

Philippines’ headline inflation rate in June accelerated by 2.5% yoy in June from 2.1% in May after easing for four consecutive months. Higher inflation during the month was mainly led by the turnaround in cost of transport which rose to 2.3% yoy from a decline of 5.6% in May, its first positive rise since February 2020. The recent recovery in global oil prices has resulted in a rise in domestic retail fuel prices while a hike in the country’s tricycle fare also led to a rise in transport costs. Other rises in costs were also registered for alcoholic beverages and tobacco (+18.5%), housing, water, electricity, gas and other fuels (+0.4%) and communication (+0.4%). Core-inflation in June also accelerated to 3% yoy after remaining steady at 2.9% since April. The headline inflation rate has averaged 2.5% in the first six months of 2020 and remains within the central bank’s target of 2-4%. Despite the rise in inflation in June, we expect inflationary pressures to remain under control in 2H20 due to expectations of slower 2020 GDP growth as well as lower consumer demand amid weak labour market conditions. Furthermore, Bangko Sentral Ng Pilipinas (BSP) guided that it projects inflation to average 2.3% in 2020 as inflation pressures remain limited.

Amid stable inflation rate going forward, we believe that BSP has some room to lower its policy rate further as certain areas of the economy remains weak. BSP has already lowered its policy rate by a total of 175bps in 2020 following the 50bps reduction in the June monetary policy meeting to 2.25%. In May, Philippines’ industrial production growth continue to decelerate sharply albeit at a slower pace of 42.1% yoy from 45.5% in April where declines were registered across all indices namely in petroleum products (-92.1%), transport equipment (-80.3%) and footwear and wearing apparel (-78.7%). Besides that, following the easing of lockdowns of June 1, the number of new Covid- 19 has continued to spike and if sustained, this could lead to another lockdown and further weigh on the country’s economic activity.

Separately, in Singapore, retail sales in May declined further by 52.1% yoy from -40.3% in April, it lowest decline since 1986. Excluding sales of motor vehicles, retail sales also plunged by 45.2% from 32.5% in April. The sustained fall in retail sales was due mainly to Circuit Breaker measures where non-essential services were not in operation. All retail industries in May had registered contraction in sales with the exception of supermarkets and hypermarkets (+56.1%) and mini-marts and convenience stores (+9.1%). In June, the economy has begun to gradually reopen with through three phases. In Phase 2 which commenced on 19 June, more businesses have been allowed to re-open and restaurants are now allowed to accept dine-in customers. Hence, we anticipate retail sales to be bolstered from June onwards amid pent-up demand. However, weak labour market conditions will continue to dampen consumer demand amid lower purchasing power.

Source: Affin Hwang Research - 10 Jul 2020