24-02-2011, 08:07 AM
Feb 24, 2011
Inflation in Singapore hits two-year high
Surging car and housing costs to blame; MAS may let Sing$ appreciate
By Aaron Low
SKY-HIGH car prices and surging housing costs pushed inflation to a two-year high last month.
The consumer price index (CPI) rose 5.5 per cent last month, its highest level since November 2008 - and well above the 4.4 per cent estimate of private sector forecasters.
Economists said they now expect the Monetary Authority of Singapore (MAS) to allow the Singapore dollar to appreciate faster when the policy is revised in April.
A higher Singdollar can make imports such as petrol cheaper, and so help stem rising inflation.
Car prices were again the main culprit for the spike in inflation, according to Department of Statistics numbers yesterday.
Transport costs jumped 18.4 per cent in January compared with last year, while housing went up by 5.3 per cent.
But those who are not in the market for new cars or homes saw a more moderate rise in prices.
Core inflation, which excludes the costs of housing and private road transport, actually fell slightly to 2 per cent.
Bank of America Merrill Lynch economist Chua Hak Bin said the big jump in transport costs, which is largely made up of higher private car prices, means the spike in inflation is 'a rich man's worry'.
'But I expect that inflation has reached its peak, and that from this month onwards, inflation should see a stabilisation and then moderation,' he said.
Dr Chua is one of the few economists who believe the MAS will not tighten policy in April.
The Government has flagged rising prices as the key challenge to the economy this year, saying it expects inflation to reach 5 per cent to 6 per cent in the first half before moderating to 3 per cent to 4 per cent for the full year.
But while the core inflation number seems to be more stable, Citigroup economist Kit Wei Zheng said it may not be sufficient to rely on it, noting the excluded items amounted to 31.8 per cent of the entire CPI basket.
Similarly, Action Economics economist David Cohen pointed out that rising prices are being seen across the board, and are not just confined to transport and housing.
Food prices climbed 2.8 per cent, education went up 3.8 per cent and health-care costs grew 3 per cent, he noted.
'The rise in prices has been broad- based, and given the uncertainty in the Middle East, we can also expect energy prices to move north in the medium term,' he said.
Oil prices have surged, hitting fresh two-year highs as the violence in Libya worsened, while food prices continued to edge up.
Closer to home, Mr Kit said the proposed foreign worker levy increases announced in the Budget will also raise medium-term wage inflation pressures.
Last Friday, Finance Minister Tharman Shanmugaratnam unveiled a slew of policies and cash handouts to help Singapore families cope with the rising cost of living.
These rebates and payouts should help alleviate the impact of inflation for households, said CIMB economist Song Seng Wun.
'The proposed Budget measures to help households cope with rising costs, plus more stable food prices, are expected to contribute to the moderation of inflation in the second half of this year,' he said.
aaronl@sph.com.sg
Inflation in Singapore hits two-year high
Surging car and housing costs to blame; MAS may let Sing$ appreciate
By Aaron Low
SKY-HIGH car prices and surging housing costs pushed inflation to a two-year high last month.
The consumer price index (CPI) rose 5.5 per cent last month, its highest level since November 2008 - and well above the 4.4 per cent estimate of private sector forecasters.
Economists said they now expect the Monetary Authority of Singapore (MAS) to allow the Singapore dollar to appreciate faster when the policy is revised in April.
A higher Singdollar can make imports such as petrol cheaper, and so help stem rising inflation.
Car prices were again the main culprit for the spike in inflation, according to Department of Statistics numbers yesterday.
Transport costs jumped 18.4 per cent in January compared with last year, while housing went up by 5.3 per cent.
But those who are not in the market for new cars or homes saw a more moderate rise in prices.
Core inflation, which excludes the costs of housing and private road transport, actually fell slightly to 2 per cent.
Bank of America Merrill Lynch economist Chua Hak Bin said the big jump in transport costs, which is largely made up of higher private car prices, means the spike in inflation is 'a rich man's worry'.
'But I expect that inflation has reached its peak, and that from this month onwards, inflation should see a stabilisation and then moderation,' he said.
Dr Chua is one of the few economists who believe the MAS will not tighten policy in April.
The Government has flagged rising prices as the key challenge to the economy this year, saying it expects inflation to reach 5 per cent to 6 per cent in the first half before moderating to 3 per cent to 4 per cent for the full year.
But while the core inflation number seems to be more stable, Citigroup economist Kit Wei Zheng said it may not be sufficient to rely on it, noting the excluded items amounted to 31.8 per cent of the entire CPI basket.
Similarly, Action Economics economist David Cohen pointed out that rising prices are being seen across the board, and are not just confined to transport and housing.
Food prices climbed 2.8 per cent, education went up 3.8 per cent and health-care costs grew 3 per cent, he noted.
'The rise in prices has been broad- based, and given the uncertainty in the Middle East, we can also expect energy prices to move north in the medium term,' he said.
Oil prices have surged, hitting fresh two-year highs as the violence in Libya worsened, while food prices continued to edge up.
Closer to home, Mr Kit said the proposed foreign worker levy increases announced in the Budget will also raise medium-term wage inflation pressures.
Last Friday, Finance Minister Tharman Shanmugaratnam unveiled a slew of policies and cash handouts to help Singapore families cope with the rising cost of living.
These rebates and payouts should help alleviate the impact of inflation for households, said CIMB economist Song Seng Wun.
'The proposed Budget measures to help households cope with rising costs, plus more stable food prices, are expected to contribute to the moderation of inflation in the second half of this year,' he said.
aaronl@sph.com.sg