Sept Inflation Unexpectedly Eases To 2.7%

Source : The Business Times, October 24, 2007

AMID expectations of rising price pressures, the inflation rate eased to 2.7 per cent last month - below market estimates of 3.1 per cent.

The slower pace of increase in September's consumer price index (CPI) came after an August high of 2.9 per cent and July's 2.6 per cent - which reflected partly the two-point hike in the Goods and Services Tax in July. In the first six months of the year, the CPI rose just 0.8 per cent.

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Department of Statistics' press release

While inflationary pressures are widely expected to persist amid the recent global rise in oil and food prices, as well as buoyant economic conditions at home, the CPI actually dipped from August to September.

The index fell 0.3 per cent from August, as housing and transport costs fell with lower car prices, road tax, housing maintenance charges and cheaper household goods. In August, the CPI had risen 0.3 per cent from July.

The Department of Statistics said: 'This shows that there is no evidence so far of uptick in inflation for August and September after the one-off increase in the GST rate in July.'

However, the CPI is conventionally tracked in year-on-year terms, and the consensus market view is that Singapore's inflation risks are tilted on the upside. Even the official CPI forecasts were recently revised upwards. The Monetary Authority of Singapore now expects the CPI rise to average between 1.5 and 2 per cent for 2007 and to pick up to 2 to 3 per cent in 2008. For the year to September, the inflation rate reached 1.4 per cent.

'We continue to expect CPI inflation to rise going forward, breaching 3 per cent before year-end,' said Citigroup economist Chua Hak Bin. 'Rising fuel prices, rents and wages are increasing inflationary pressures. Electricity and bus fares will be raised further in October on higher fuel prices.'

MAS also expects inflation to average 3.5 per cent in the first half of 2008 before falling off in the second half, he noted.

Said HSBC's Prakriti Sofat: 'We think that the slight slowing in the headline CPI rate (in September) is a blip in the otherwise upward trend. Our view is that CPI readings will continue to grind higher till the middle of 2008, after which the GST boost will drop out of the calculation, allowing CPI readings to temper.'

Several factors will keep inflationary pressures up, she noted. The economy is booming, with growth running a good 3 percentage points above potential. A tight labour market and rapid wage growth will also fuel price pressures. As well there is imported inflation from robust oil and food prices. In September, all categories of the CPI basket recorded price gains.