Inflation In S'pore May Hit 6.5% This Month

Source : The Straits Times, Jan 15, 2008

CONSUMER prices in Singapore may surge a staggering 6.5 per cent this month, bringing full- year average inflation to an equally eye-popping 5 per cent, according to Citigroup.

Higher housing and food costs are likely to cause a spike in price levels this month, while low interest rates may stimulate property prices later in the year, said the Citigroup economist Kit Wei Zheng yesterday.

Mr Kit said his higher estimate stems from 'pent-up price pressure from the strong growth of the past two years'.

Citigroup's new forecast comes days after United Overseas Bank predicted that inflation in Singapore would exceed 6 per cent this quarter.

Economists have been scrambling to keep their forecasts up with the relentlessly rising pace of inflation in recent months.

Inflation hit a 16-year high of 3.6 per cent last October before accelerating to 4.2 per cent in November, the fastest rate of price increase since 1982.

The Government has since raised its forecast, saying prices may jump as much as 5 per cent in the early part of this year, with full-year inflation coming in between 3.5 per cent and 4.5 per cent.

But those estimates may still be too conservative.

'We are upgrading our inflation forecast for this year to 5 per cent from 3.8 per cent previously,' said Mr Kit.

He expects inflation to stay around 5 per cent to 6 per cent in the first six months of the year before moderating to about

4 per cent in the rest of the year.

Accommodation costs will jump up this month, as HDB annual values have recently been revised for the first time since 2004.

Food prices may also spike, as wholesalers renegotiate prices held down by contracts that expire this month, said Mr Kit.

Other economists are sitting tight for now, preferring to wait for more actual figures before changing their predictions for Singapore's inflation rate.

A slowing world economy may put the brakes on oil prices and ease inflationary pressures, they said.