Friday 26 October 2012

Inflation back on the rise, hits 4.7% in September 2012

It surges past forecast due to higher car and housing costs
By Aaron Low, The Straits Times, 24 Oct 2012

INFLATION rose sharply to 4.7 per cent in September from the same month last year, reversing two months of falling levels.

Although inflation had been markedly lower at 3.9 per cent in August, the central bank had warned that higher inflation could return towards the end of the year. September's inflation figure turned out higher than the median estimate of 4.3 per cent from a Bloomberg poll of 17 economists.

In what has been a familiar story over the past 18 months, car prices and housing costs were the main factors behind the pace of rising prices.

Private road transport costs shot up 10.8 per cent last month, from 6.3 per cent in August, due to higher certificate of entitlement (COE) premiums. Accommodation rose 7.7 per cent in September, higher than the 7.4 per cent in August.

In its release on inflation yesterday, the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) also flagged concerns over food prices.

Some economists are predicting an extended period of persistently high inflationary pressures.

They are worried that domestic sources of inflation are becoming entrenched as a result of the tight labour market, stricter foreign worker policies and still-rising wages. For instance, health-care costs rose 4.9 per cent in September, keeping pace with the 5.1 per cent increase in August.

Barclays Capital economist Leong Wai Ho said that Singapore is starting to see "persistent price increases in services cost, namely health care".

"The report also clearly shows that higher wage costs are starting to filter through into services costs and prices," he said.

Core inflation, which excludes accommodation and car prices, edged up to 2.4 per cent, higher than the 2.2 per cent in August.

The spike in September's inflation also prompted economists to call for measures other than tweaking the exchange rate policy to combat rising inflation.

Earlier this month, the MAS left unchanged its exchange rate policy, which is the Government's main tool to combat inflation, as it warned that the inflation threat is still present.

But ING Bank economist Tim Condon questioned whether the exchange rate policy remains effective in fighting inflation: "This past month was pretty bad. Price rises were across the board."

Bank of America Merrill Lynch economist Chua Hak Bin warned inflation could rise even faster next year as higher foreign worker levies and lower quotas kick in.

In fact, one big worry is that the combination of the strong currency as well as high cost pressures may be eroding Singapore's competitiveness, said ANZ economist Aninda Mitra. This could "limit the full scope of a growth recovery as global conditions normalise".

MAS expects inflation to come in slightly above 4.5 per cent this year and between 3.5 per cent and 4.5 per cent next year.

No comments:

Post a Comment