Wednesday, October 24, 2007

September Inflation Rate Eases To 2.7%

Source : The Straits Times, Oct 24, 2007























THOSE who think prices in Singapore just keep going up had a pleasant surprise yesterday when the latest inflation figures were released.

Consumer prices rose at a slower rate of 2.7 per cent last month from a year earlier and eased from August's 2.9 per cent.

Not only did last month's consumer price index (CPI) inflation come in lower than all market forecasts, overall prices also retreated by 0.3 per cent from the previous month.

Department of Statistics (DOS) figures announced yesterday showed that cheaper housing and lower transport and communication costs led the month-on-month decline in consumer prices.

'Housing costs went down by 1.2 per cent due mainly to lower housing maintenance charges and cheaper household durables', while car prices and road taxes also declined, said the DOS.

After the goods and services tax (GST) increase contributed to a 2.1 per cent price hike from June to July, the change in the CPI in the two subsequent months was similar to those in the months before.

'This shows that there is no evidence so far of an uptick in inflation for August and September after the one-off increase in the GST rate in July,' said a DOS statement.

Year-on-year inflation cooled last month partly because the percentage increases in housing and transport costs were lower than those recorded in August.

While the cost of food last month climbed 3.7 per cent from a year earlier, housing expenses were up by a mild 0.4 per cent, while transport and communication prices increased by 2.2 per cent.

Food accounts for the biggest chunk of household spending, followed by transport and communication, then housing.

The moderation in inflation caught 13 economists polled by Bloomberg by surprise. They expected inflation to pick up to between 3 per cent and 3.2 per cent last month. The median consensus forecast was 3.1 per cent.

HSBC economist Prakriti Sofat noted: 'It surprisingly came in below consensus in September.'

Standard Chartered economist Alvin Liew said: 'It is surprising that housing costs rose less than clothing and footwear, given the run-up in residential rents lately.'

However, with energy and food prices rising, economists expect year-on-year inflation to trend upwards in the months ahead.

'We think that the slight slowing in the headline CPI rate is a blip in the otherwise upward trend. Our view is that CPI readings will continue to grind higher till the middle of 2008,' said Ms Sofat.

United Overseas Bank economist Ho Woei Chen said higher oil and asset prices and wage costs mean inflation risks remain on the upside.

DBS economist Irvin Seah said the bulk of the jump in monthly inflation since July was due to the one-off GST effect, which will last until June next year.

Mr Liew argued: 'Although GST plays a big part, there are other components in play.

'Given what we are seeing in oil, commodity and food prices, as well as transport fares, even if the rise in housing costs remains low, we still think inflation will likely be trending upwards for the next few months.'

In the first nine months of the year, inflation has averaged 1.4 per cent.

Singapore's central bank predicted that inflation for the whole of this year will be between 1.5 per cent and 2 per cent.

It projects that inflation will rise to about 3.5 per cent year-on-year in the first half of next year, partly due to July's GST hike, and come in at 2 per cent to 3 per cent for the whole of next year.

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