Friday, November 21, 2008

Inflation To Ease Next Year

Source : The Straits Times, Nov 21, 2008

INFLATION will continue to ease next year the Ministry of Trade and Industry said.

The forecast for inflation next year was revised down to 1 to 2 per cent from the previous range of 2.5 to 3.5 per cent.

With inflation easing, some economists have raised the possiblity of global deflation. -- PHOTO: URA

Permanent Secretary for Trade and Industry Peter Ong explained that this was due to lower global crude oil prices and and 'lower than expected' HDB property values domestically next year.

Global commodity prices have moderated after shocks earlier this year. Oil hit a peak of US$145 per barrel in July. But towards the end of September, the price of oil had fallen to below US$100 per barrel as global economic conditions worsened. Oil was at around US$49 last night.

The International Monetary Fund's Food price index has also fallen 14 per cent since peaking in June.

Mr Ong said that global oil prices are now expected to average US$60 to US$80 per barrel in 2009 compared to an average of US$100 per barrel in 2008.

HDB property annual values would also be lower than expected in 2009.

Office and shop rentals are also expected to 'come off slightly' and to moderate further Mr Ong said.

While construction has continued to be strong despite the weak economic conditions, the MTI said demand for commerical and industrial space will be affected by the financial crisis.

Construction materials prices and equipment costs are therefore expected to fall next year.

This year's inflation remains unchanged at the estimated 6 to 7 per cent range.

With inflation easing, some economists have raised the possiblity of global deflation.

However, the central bank, for now, does not see that as a likely prospect.

The Monetary Authority of Singapore's executive director Edward Robinson said: 'A significant proportion of inflation is determined by external factors.'

'(Deflation) would require sustained, widespread falls in the prices of global commodities and I don't think, at this stage, that that scenario is relevant.'

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