Saturday 26 May 2012

Inflation hits 4-month high of 5.4% in April 2012

Higher-than-expected figure mainly due to high transport, housing costs
By Aaron Low, The Straits Times, 24 May 2012

HIGHER car prices and accommodation costs drove inflation to a four-month high of 5.4 per cent last month with warnings that any relief from soaring prices is a few months away at least.

The high number caught out economists who had expected the Consumer Price Index (CPI) to come in at 5.2 per cent. Inflation was at 5.2 per cent in March.

All segments of the CPI recorded increases but the biggest contributors were again private transport and accommodation costs.

They formed more than two-thirds of inflation last month, said a statement by the central bank and the Ministry of Trade and Industry (MTI) yesterday.

Housing prices rose 11.1 per cent last month while transport costs were up 7.5 per cent.

If private car and accommodation costs were stripped out, core inflation stood at 2.7 per cent compared with 2.9 per cent in March. The pace of food price rises also slowed, falling from 3.8 per cent in January to 2.4 per cent last month.

The Monetary Authority of Singapore and the MTI said inflation could stay at the 5 per cent level for the next few months but should ease in the second half of this year.

But OCBC economist Selena Ling said yesterday that, barring a disaster in the euro zone, inflation is unlikely to fall in a big way.

'Our full-year 2012 headline CPI forecast stands at 4.3 per cent, which is near the top end of the official 3.5 per cent to 4.5 per cent range,' she said.

Bank of America Merrill Lynch economist Chua Hak Bin noted that car prices could ease after the Government said it would manage the severe shortage of certificates of entitlement.

But he noted that other components of inflation, including the cost of gas and utilities, might continue to rise at a faster pace due to higher oil prices.

Likewise, health-care costs continued to rise, increasing by 4.3 per cent last month, while education expenses were 3.6 per cent higher.

UniSIM senior lecturer Tan Khay Boon said he is 'increasingly concerned about the high health-care cost'.

'With the increase in salaries of allied health-care workers, this component of cost pressure may continue to rise and become a burden to households,' he warned.

One big factor for the rise in consumer and services costs, such as health care, is the passing through of higher wages from a tight labour market and tough foreign worker policies.

The unemployment rate stood at 2.1 per cent in March, while the citizen unemployment rate was 3 per cent. These numbers mean that the economy is in a full employment situation.

Barclays Capital economist Leong Wai Ho said that moves to tighten policies over foreign workers are not yet over, with another round of levy increases in July.

'The key drivers will be the upward adjustment to foreign worker levies by a larger quantum than before and the tightening of foreign worker quotas from July, which could push up business costs,' he said.

Food price increases high but have dropped steadily, says MTI
By Melissa Tan. The Straits Times, 24 May 2012

WHILE food price increases have been above the historical average since early last year, they have been steadily coming down in recent months, said the Ministry of Trade and Industry (MTI) yesterday.

Food prices were 2.4 per cent higher last month compared with the same month last year, but were down from January's 3.8 per cent year-on-year figure for food.

The average for the first four months of this year was 2.9 per cent, well above the historical rate of 2 per cent.

The culprit was a 'sharp rise in global food commodity prices', the MTI said, which spiked 22.8 per cent on average last year.

'Robust consumption demand from emerging economies came up against widespread supply disruptions caused by the La Nina weather phenomenon,' it said.

Singapore's food inflation was nowhere near as bad, in part thanks to the appreciation of the Singapore dollar, economists said.

'Our stronger dollar has helped to cap imported food costs. At the same time, given the favourable planting conditions in Malaysia, vegetable prices were also lower,' said Barclays Capital economist Leong Wai Ho.

Food occupies the biggest portion of the average family's consumption expenses after housing rentals, the MTI noted.

An average household spends around a fifth, or nearly $1,000, of its $4,388 monthly expenditure on food.

But whether a family experiences high or low food inflation naturally depends on what they eat and where. For instance, seafood prices went up 4.9 per cent last month while vegetable prices remained flat. Restaurant food also became 4.1 per cent dearer.

Conversely, 'food court prices fell for the first time in two years, possibly reflecting the exit of more expensive hawker stalls which were replaced by others in the same hawker centres', Mr Leong noted.

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