December Inflation Hits 25-Year High

Source : The Business Times, January 24, 2008

CPI jumps 4.4% on higher health care, transportation and food costs

FUELLED by higher transportation, food and health care costs, inflation here hit a 25-year high in December, when the Consumer Price Index (CPI) jumped 4.4 per cent from a year ago.

For the whole year of 2007, the CPI rose 2.1 per cent from 2006, partly reflecting the two percentage point hike in the Goods and Services Tax (GST) in July last year, data released by the Department of Statistics showed.

'A large part of the up-move was on account of higher global oil prices (oil prices currently running at 47 per cent year-on-year in Singapore dollar terms), which has led in recent months to hikes in bus and taxi fares,' said Robert Prior-Wandesforde, an economist with HSBC.

Food prices rose 2.9 per cent in 2007 due to dearer cooked food, fresh vegetables, milk products and fruits. They were 5.5 per cent higher in December from a year ago.

Higher taxi fares, car prices and dearer petrol accounted for the 2 per cent increase in transport and communication prices in 2007 from a year ago while the increase in December alone was a steeper 6.4 per cent year-on-year.

Health care costs last year also accelerated to a 4.1 per cent growth from a year ago, driven by higher charges for daily ward and medical treatment, specialist services, general medical consultation, dental treatment and dearer Chinese herbs. In December, health care costs were 6.3 per cent higher than the same month in 2006.

On a seasonally adjusted basis, the CPI in December grew 0.5 per cent from the preceding month.

While the government may be prompted to act to curb further uptick in consumer prices, an easing economic growth is making its monetary policy call harder to make.

'The possibility of tightening is always there but our expectation is that they will keep on hold at the next April policy meeting because we see that growth concerns would outweigh inflationary concerns as we are seeing an increasingly uncertain outlook,' Standard Chartered economist Alvin Liew said.

'At the same time, we would expect there would be a significant easing of inflationary pressures in the second half of 2008,' he added. 'The reason for this easing, for one, is the dissipation of GST hike after June 2008. We are also looking at global demand easing and the result is that the pressure on some, not all, commodities would also ease.'

Mr Liew said that he expects oil prices to cool from the recent highs to hover in the range of US$70-80 a barrel.

But Mr Prior-Wandesforde believes that although the exchange rate call is becoming a tougher one given the cloudy outlook, 'the MAS will find it difficult to ignore a 5-6 per cent inflation rate at the time of the next policy meeting in April'.