COEs keep inflation high

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The Straits Times
Oct 25, 2011
COEs keep inflation high

Transport, accommodation push CPI up 5.5%, but experts say peak has passed

By Aaron Low

INFLATION continued to stay high last month, driven by pricier accommodation and transport, but economists still believe the worst has passed.

The Consumer Price Index (CPI) rose 5.5 per cent in September compared with the same month last year - the fourth month in a row that the number has exceeded 5 per cent.

Inflation rose mainly because of higher accommodation costs, which rose 9.6 per cent, and transport, up 11.4 per cent.

The Department of Statistics said costlier private road transport was primarily due to a significant increase in Certificate of Entitlement (COE) premiums as well more expensive petrol.

But despite the stickiness of the high inflation figures, some economists believe the peak has passed.

They noted that inflation in September fell 0.2 per cent compared with August, when the CPI was 5.7 per cent.

Likewise core inflation, which excludes private road transport and accommodation, fell to 2.1 per cent in September compared with last year.

Citigroup economist Kit Wei Zheng said the fall in September's figure compared with August indicates that the peak has passed.

He expects inflation to continue falling due to the global economic slowdown, noting that 'import prices are already easing and core inflation appears to have begun to moderate as well'.

'Nonetheless, lingering pipeline pressures from a tight labour market and lagged pass-through of previous fuel and food price costs will likely keep inflation elevated,' said Mr Kit.

He also noted that COE premiums are rising on news that the Government will cut the vehicle population growth rate from next year.

HSBC economist Leif Eskesen also noted that although inflation has peaked, it will remain at above 5 per cent for some time to come.

The Monetary Authority of Singapore had earlier said inflation would average about 5 per cent this year and between 2.5 per cent and 3.5 per cent in 2012.

Mr Eskesen said: 'Inflation is, of course, being pushed up by deliberate 'anti congestion' policy, which has lifted COE prices to gobsmacking levels.

'But, as we have pointed out before, the willingness to buy at these prices is evidence of the strong underlying domestic demand conditions.'

Bank of America Merrill Lynch economist Chua Hak Bin is forecasting inflation to average 5.2 per cent this year and 3.9 per cent next year.

'Despite the slowdown, elevated commodity prices, stricter foreign labour policies and lower COE vehicle quota from mid-2012 will keep inflation stickier compared to past slowdown episodes,' he added.

aaronl@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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