Sept Inflation Slows

Source : TODAY, Wednesday, October 24, 2007

But prices are still expected to rise in the coming months

SINGAPORE’S inflation rate slowed unexpectedly last month, easing concerns that the economy was showing signs of overheating.

According to the Department of Statistics, the consumer price index (CPI) increased 2.7 per cent from a year earlier, slower than the 2.9-per-cent gain in August and below the 3.1-per-cent gain expected by economists polled earlier.

“This gives some reassurance that inflation is not taking off,” economist David Cohen from Action Economics told Bloomberg.

In fact, September prices were down 0.3 per cent compared to August on the back of month-on-month falls reported in housing, transport and clothing costs.

With the index back to July levels, “this shows that there is no evidence so far of an uptick in inflation for August and September after the one-off increase in the GST rate (from 5 to 7 per cent) in July”, the department said. However, the impact was felt in the year-on-year figure.

The CPI tracks the prices of a basket of goods and services, such as food, healthcare, housing and transport. Food prices, which make up 23 per cent of this basket, rose 0.4 per cent from August.

Economists were pleasantly surprised by the numbers, but warned that inflation is likely to accelerate in coming months as transport costs and electricity tariffs rise on the back of record oil prices.

Citi economist Dr Chua Hak Bin expects full-year inflation of around 2 per cent, while UOB Research forecasts a 1.8-percent rise in prices. This is in line with the Monetary Authority of Singapore’s (MAS) own forecast of 1.5 to 2 per cent inflation this year, and 2 to 3 per cent next year.

“Inflationary pressures have picked up amid the buoyant domestic economic conditions and the recent rise in global oil and food prices,” the MAS said. “Domestic price pressures are expected to persist due to heightened supply constraints, while externally, oil, food and other commodity prices will remain firm into the next year.”