Jul 26, 2011

Singapore - Singapore's June inflation up 5.2% on-year

SINGAPORE: Singapore's Consumer Price Index (CPI) in June rose 5.2 per cent year-on-year.

This was in line with market expectations, and higher than the 4.5 per cent rise in May.

The upward cost pressures were concentrated in the usual sectors of transport, housing and food.

A rise in accommodation costs and electricity tariffs pushed up housing costs by 8.8 per cent.

The cost of transport increased by 10.4 per cent because of more expensive cars and petrol, while food prices rose 3.1 per cent on-year.

Education and stationery costs moved up 3.3 per cent and healthcare cost increased by 2.3 per cent.

Core inflation - which excludes more volatile items such as accommodation and transport - rose 2.3 per cent year-on-year.

On a month-on-month basis, headline CPI slipped 0.2 per cent, while core inflation remained unchanged.

And headline inflation is not expected to moderate at least until the end of the year.

Vishnu Varanthan, Asia economist at Capital Economics, said: "Next few months, we are going to see inflation numbers rather elevated, so they are going to be (on) the firmer side of 4.5 per cent or perhaps even five per cent for a couple of months - this is primarily driven by higher housing as well transport costs."

For the first half of the year, inflation has risen by 5 per cent compared with the same period a year ago. The increase was higher than the 3.7 per cent rise in the second half last year.

In the first six months this year, the top 20 per cent earners in Singapore experienced a higher inflation rate compared to the rest. This was largely due to the significant price increases for cars and petrol, which have relatively larger weights compared with other income groups.

During the first half of 2011, the inflation rates for the lowest 20 per cent, middle 60 per cent and highest 20 per cent income groups were 3.9 per cent, 4.7 per cent and 5.6 per cent respectively. 

Experts said although low income earners faced the lowest inflation rates, this was significant for them due to their low earnings base. 

The higher inflation expected in the next few months is also a reason for the recent revision to the official forecast for 2011. It was raised by one percentage point last week, to between four and five per cent.

"Inflation has remained high, and furthermore this is to a large extent reflective of what's happening in the region as well. I think monetary tightening is shifting towards a lower gear and central banks are beginning to be more cautious," said Irvin Seah, senior economist at DBS.

"So most of the central banks, although we still expect them to continue to hike interest rates, I think the pace of increase in policy rates is likely to be slower, going forward," he added.

Since last April, the Monetary Authority of Singapore (MAS) has been tightening its monetary policy to tackle inflationary pressures. These policies are expected to play out more strongly in the second half of the year. 

So in its upcoming policy meeting in October, the MAS will face a tricky task of deciding whether to tighten these policies further or to take a step back because of higher uncertainties in the global economy.

- CNA/al/ls


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