PAYING more for the same goods and services as compared to a year ago? Be prepared to fork out more in the near future.
After years of benign growth, inflation in Singapore could hit 2 percent next year— a level not seen since 1997.According to the Monetary Authority of Singapore (MAS), inflation could accelerate to 1 to 2 per cent next year, reflecting higher business costs associated with a growing economy. The economy grew by a “strong 7.3 per cent” in the first half of this year, the MAS said in its annual report released yesterday.
In the first six months of this year, the costs of goods and services — measured by the consumer price index (CPI) — rose an average 0.8 per cent. It could pick up to around 1.5 per cent for the whole year as the impact from the increase in the goods and services tax (GST) and a hot property market — on which the MAS is keeping a close eye — kicks in.
In the last nine years, the CPI has hovered at around 0.5 to 1.7 per cent, falling to the negative territory of minus 0.3 per cent in 1998 and minus 0.4 per cent in 2002.
The highest it has ever been was in 1974, the year oil prices quadrupled, when inflation reached 22.3 per cent.
Mr Song Seng Wun, a regional economist with CIMB-GK Research, said the impact of the 2-percentage-point GST hike and rising rentals would be tempered by Government subsidies, such as the offset measures that kicked in at the same time.
Even so, to the man in the street, the pinch may feel harder than the cold inflation numbers would indicate. “Food prices make up about a quarter of the CPI, and already you’re seeing food portions being reduced because it’s easier to cut quantity than to raise prices,” said Mr Song. “Housing takes up 20 per cent, and transport and communication another 20 per cent, so what is being felt is greater than what is indicated by the CPI.”
The MAS is also keeping a close eye on rising property prices. Its managing director, Mr Heng Swee Keat, said: “The impact of the rise in property prices and CPI — the firstround effect is small. We’ll watch the second round to see if high prices will pass through to inflation as rental costs get passed on into prices of goods and services.”
Given the financial institutions’ “significant” exposure to the property market, the MAS “will continue to monitor the exposure of the financial market to the property sector”, Mr Heng told a press conference.
He added that the MAS does not have any preset trigger point to signal that lending has reached danger levels.
As for economic growth, the agency is keeping to its full-year growth forecast of 5 to 7 per cent for this year.
However, many private-sector economists are looking at 8-per-cent growth, following the betterthan- expected performance so far. The 7.3-percent growth in the first six months was powered by ongoing expansion in the transport, engineering, biomedical, manufacturing and services sectors.
The MAS also reported positive growth in the financial services sector. The total market capitalisation of equities listed in Singapore rose 69 per cent from 2005 to reach $720 billion.
The authority noted that Singapore is now the largest Reit market in Asia ex-Japan, with 16 listed Reits and a market cap of over $27 billion.
The MAS recorded a net profit of $3.85 billion for the financial year ending March 31, against $1.217 billion in the previous year.
As for the Singapore dollar, the MAS is maintaining its policy of allowing a modest and gradual appreciation.
Despite the positive numbers, Mr Heng said that the MAS would continue “to remain vigilant in the face of a number of risks in the global economic and financial environment”.
“These include upside surprises to inflation from higher commodity prices, weaker-than-expected growth in the US following from a more severe unravelling of its sub-prime market and potential heightening of geopolitical tensions around the world,” he said.
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