Inflation This Year Could Go Past 5%, Says PM Lee

Source : The Business Times, February 4, 2008

Govt will have something to distribute in Budget, but realism needed

Prime Minister Lee Hsien Loong cautioned yesterday that inflation in the first half of the year could be high.

Speaking at the Chinese New Year Celebrations at Teck Ghee Community Centre, Mr Lee said: 'Last year, inflation was about 2 per cent. This year, it could be 5 per cent, maybe even more. Especially in the first half (of the year), it is going to be high.'

Earlier government estimates last November had put inflation at between 4 and 5 per cent for the whole of the first quarter of 2008.

Speaking to an audience of local residents and grassroots leaders, Mr Lee said what was happening was a global phenomenon produced by increased demand, disease, adverse weather and even the diversion of crops towards fuel production.

But he added that unlike some neighbouring countries, the government would not move to control food prices. Nor would it subsidise 'essentials'.

Touching on next week's Budget, he said that while the government would have something to distribute, especially to the poor and the elderly, there is a need to be realistic. 'We cannot just distribute money and make the problem go away,' he said.

Instead, Mr Lee recommended practical measures, including diversifying the nation's food sources and buying generic house brands which are cheaper and offer 'better value'.

He added: 'Most importantly, we need to grow the economy so that incomes will go up. Last year, we had a good year, so wages, bonuses went up. And NTUC did a survey and found that last year, the bonuses which workers were getting were the highest bonuses in any year since 1990 - which means nearly in 20 years, we have not had such good bonuses.'

For its part, the government will help lower-income families through the Workfare Income Supplement scheme. To date, Mr Lee said $150 million had been paid out in Workfare to 290,000 low-income workers for the month of January alone.

The PM also revealed that the Ministry of Community Development, Youth and Sports (MCYS) is reviewing the Public Assistance Scheme.

The next few years are, however, expected to be challenging. Mr Lee said that Singapore would need to stay competitive and grow. 'Then, whether it is the Year of the Rat (2008), or the Ox (2009) or Tiger (2010), we will have the resources to deal with the challenges that come our way.'

Giving an idea of how high inflation could rise, Citigroup economist Chua Hak Bin said that 'it would not be out of the question to see inflation hit 7 per cent in February or March'.

He explained that earlier estimates did not take into account the spell of bad weather in China that will certainly put a strain on food prices imported here.

Dr Chua was, however, optimistic that the upcoming Budget will be a 'pro-people Budget' as opposed to the 'pro-business Budget' of last year.

Apart from rebates, he also expects to see the restoration of CPF cuts. Noting that the middle class is also feeling the pinch, Dr Chua also expects to see income tax cut by a percentage point this year, and perhaps followed by another cut next year.