Rising wages, rents, car prices, GST hike will have an impact
(SINGAPORE) Even with rising oil and food prices, imported inflation will remain muted in 2008, according to the Monetary Authority of Singapore (MAS). But various domestic factors will impact on the consumer price index (CPI), it says.
Wage pressures, for one, will persist in a tight labour market. Nominal wage growth in 2007 and 2008 is projected at 6-7 per cent and 5-6 per cent, respectively, higher than in the last few years.
And, following five years of decline, overall unit labour costs are estimated to rise by 4.5-5.5 per cent this year and 3.5-4.5 per cent next year.
The impact of rising property rentals on the CPI will also become more apparent, says MAS in its latest Macroeconomic Review.
While the upturn in the residential property market has yet to hit accommodation costs significantly in the CPI, the pass-through from rising commercial rentals could strengthen as businesses raise prices to offset mounting costs, the central bank says.
Car prices will also be one of the key contributors to CPI in 2008, it adds, noting that certificate of entitlement (COE) quotas are expected to drop next year. With smaller quotas, COE – and overall car – prices are likely to rise.
Not least, domestic energy-related items will see price rises with higher oil prices. Apart from direct increases in, say, electricity tariffs, there are indirect pass-through effects via higher public transport fares and cooked food prices.
The latest Goods and Services Tax (GST) hike will continue to impact the CPI through the first half of 2008, and add about 0.5-0.7-point to the index in 2007 and 2008, according to MAS.
It expects CPI inflation to come in at 1.5-2 per cent in 2007 and 2-3 per cent in 2008, with possibly a 3.5 per cent average in the first half of next year.
Excluding housing and private road transport, underlying inflation will likely average 1.5-2 per cent in 2008.
Source: Business Times 31 Oct 07