Singapore’s Inflation Hits 6.5% In Feb

Source : The Business Times, March 25, 2008

The Consumer price index (CPI) rose 6.5 per cent in February from a year earlier - just shy of the 25-year high of 6.6 per cent reported in January - as the cost of housing, food, transport and communication increased, data released yesterday by the Department of Statistics (DOS) shows.

This prompted the Ministry of Trade and Industry to issue a second statement in two months saying that underlying inflation remains stable, as indicated by the three-month moving average (3MMA) CPI, which grew 0.8 per cent month- on-month in February.

It noted that 3MMA, which picked up in the middle of 2007, has stayed around 0.8 per cent since then.

‘The underlying inflation momentum is expected to decline during the course of the year,’ it said.

The ministry issued a similar statement in January when the CPI surged to a 25-year high.

Led by more expensive accommodation and electricity tariffs, the cost of housing jumped 8.8 per cent in February from a year earlier.

Food prices rose 6.7 per cent on the back of higher prices for cooked food, milk products, fresh poultry, fruit and bread.

Higher petrol prices, taxi fares and car prices drove costs of transport and communication by 7.6 per cent year on year.

On a month-on-month seasonally adjusted basis, the CPI rose 0.2 per cent in February from January. For the first two months of this year, the CPI increased 6.6 per cent from a year earlier.

Economists note that while an upside risk to the CPI remains, an expected easing in the second half of this year will allow the index to fall within the government’s official forecast of 4.5-5.5 per cent. Hence, monetary tightening by the Monetary Authority of Singapore in April is unlikely, they say.

‘Clearly, the downside risk to growth is probably greater now,’ said Citi economist Kit Wei Zheng. ‘With policy makers being aware of that, I think further tightening is not the way to go.’

Mr Kit said he expects the CPI to stay above 6 per cent in the first half of this year before moderating to around 4 per cent in the second half when the effect of the two percentage point hike in goods and services tax wanes and the high base of comparison for commodity prices in the second-half 2007 kicks in.

‘While the year-on-year figure looks rather daunting, exaggerated by the low base a year ago, we can take comfort that the rate of growth is stable or slowing,’ added CIMB-GK regional economist Song Seng Wun.

CIMB-GK is keeping its full-year CPI forecast the same as the government’s estimated range, while Citi recently raised its projection from 5 per cent to 5.4 per cent.

Across different income groups, the top 20 per cent of households have felt the most heat from the higher inflation climate, according to DOS’s household survey.

The CPI for the top 20 per cent income group rose more sharply, from 0.4 per cent in 2006 to 2.3 per cent in 2007 on the back of higher costs of holiday travel, car and petrol, which have relatively larger weightings in this group than the lower-income groups.

This compares with a 2 per cent year-on-year increase in the CPI for the lowest 20 per cent income group and middle income group, from 1.8 per cent and 1.1 per cent in 2006.

For the whole of last year, the inflation rate for general households - the central 90 per cent of households by expenditure - was 2.1 per cent compared with one per cent for 2006, as the cost of food, holiday travel, accommodation (rented and owner-occupied), university tuition fees, taxi fares and petrol rose. The CPI rise also reflected a one-off increase in GST in July last year.