By Shamim Adam

June 23 (Bloomberg) -- Singapore’s consumer prices fell for a second month in May as transport and recreation costs dropped amid an economic slump that’s hurt demand for goods and services.

The consumer price index declined 0.3 percent from a year earlier, after falling 0.7 percent the previous month, the Department of Statistics said in a statement today. That compares with the median forecast for a 0.9 percent drop in a Bloomberg News survey of six economists. Prices rose 0.6 percent from April, without adjusting for seasonal factors.

Singapore’s central bank expects consumer prices to be unchanged or fall 1 percent in 2009, after last year gaining at a rate not seen since 1982. Easing inflation has allowed policy makers worldwide to cut interest rates and increase public spending to stimulate their economies amid the global recession.

“We expect a deflationary trend in the second half of the year,” said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore. “The risks to that trend are if Singapore’s housing prices start to move up and commodity prices continue to rise.”

The Monetary Authority of Singapore, which uses its currency to manage inflation, said in April it would adjust the trading range for the island’s dollar, a move economists say was a de facto devaluation of the exchange rate. A stronger currency helps to reduce the cost of imported goods.

The Singapore dollar has gained 4.1 percent this quarter, after easing 5 percent in the first three months of the year, according to Bloomberg data.

Food, Transport

Singapore’s consumer prices may drop 0.5 percent in 2009, after gaining an average 6.5 percent last year, economists in a central bank survey published this month showed.

Food prices, which make up 23 percent of the index, rose 2.6 percent in May from a year earlier, following April’s 3.6 percent increase.

Transport and communications costs fell 5.8 percent, declining for an eighth month amid cheaper gas and automobile prices. Housing rose 0.7 percent in May, from a 1.7 percent decline in April.

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Last Updated: June 23, 2009 01:00 EDT