S'pore's Inflation May Hit 4% Next Year: Economist

Source : The Straits Times, Nov 5, 2007

Citigroup forecast fans overheating concerns.

SINGAPORE'S inflation may hit a record-breaking 4 per cent in the first half of next year as a red-hot economy adds more strain to the already-tight labour and property markets.

This forecast came from a prominent local economist, who warned on Monday that the Singapore economy is at risk of overheating.

To address this, the Government will need to allow the Sing dollar to appreciate more quickly and possibly defer less urgent major investment projects such as the planned Marina Bay botanical gardens.

'We maintain that overheating and inflation risks remain high,' said Citigroup economist Chua Hak Bin.

'The economy is now at full employment and the cost of hiring foreign workers has now increased considerably given higher accommodation costs,' said Dr Chua in a research report.

His view found support among some of his peers, although others reckon that a slowing world economy will keep prices here in check.

Dr Chua's report comes a month after Prime Minister Lee Hsien Loong said that while there is an office space crunch, the economy as a whole is not overheating and inflation is well under control.

The Monetary Authority of Singapore (MAS) has acknowledged that inflation is on the rise, due largely to a July hike in the Goods and Services Tax (GST).

It is expecting average prices to increase by 3.5 per cent in the first half of next year before moderating later in the year.

MAS has tightened monetary policy, allowing a faster strengthening of the Sing dollar, to curb inflation from imported goods.

'We are probably less sanguine,' said Dr Chua.

He said global energy and food prices are rising sharply, driven by record oil prices and adverse weather conditions in farming areas. But bigger challenges lie in the domestic property and labour markets.

Dr Chua said the consumer price index (CPI) may have underestimated the full extent of rising housing costs.

'Housing CPI costs were up 0.4 per cent in September, lagging actual steep increases in property prices and rents.'

By contrast, official indices show that residential rents surged 39 per cent in the third quarter and those for commercial space jumped 57 per cent.