INFLATION accelerated last month to a 26-year high of 6.6 per cent with housing, food and transport costs registering steep increases over the past year.
The January figure picks up pace from December’s 4.4 per cent jump – itself the biggest rise since April 1982 – as external and local factors added further upward momentum to consumer prices.
The big surge was largely anticipated by economists, who said inflation rates in the coming months are unlikely to rise much more from the current levels.
Still, the spike seems to have prompted an unprecedented move by the Ministry of Trade and Industry (MTI), which issued a statement on the inflation data as it was published yesterday by the Department of Statistics.
Seemingly looking to quell fears of spiralling living costs, the MTI said that while the jump in consumer prices last month was high,
this was consistent with the official full-year inflation forecast of 4.5 to 5.5 per cent.
It said the spike was bumped up by several one-off factors, adding that price pressures should subside later in the year.
The surge in last month’s consumer price index (CPI) was driven largely by an 11.1 per cent jump in housing costs.
Much of this came from the Government’s one-off revision of the annual values of public flats. The annual value is the theoretical rental income that a house could fetch in a year.
‘As has been explained in Parliament, this does not actually affect expenditures of most Singaporeans, who own the homes they live in,’ said the MTI statement.
The ministry also pointed out that price levels were especially low in January last year, due in part to service and conservancy rebates given out that month. Such rebates were not given last month as they were already doled out in December.
Less theoretical were the hikes in food and transport costs, the two biggest components of the CPI.
Driven by global prices, costs of raw food such as dairy products, cooking oil and meat surged, which in turn made dining out more expensive, said the Department of Statistics in its monthly statement.
High oil prices made driving more costly, while car prices and taxi fares rose, it added.
Some of the increase would have been the result of last July’s goods and services tax hike, which continues to inflate year-on-year CPI figures even though it is no longer raising price levels from one month to the next.
The MTI said looking at price rises between consecutive months would indicate inflation momentum better. Taking three-month averages to smooth out monthly volatility, it said inflation momentum picked up last July but has stayed constant since then.
Still, if headline inflation figures, which use year- on-year comparisons, remain high, inflation expectations may rise, warned Citigroup economist Kit Wei Zheng. This may prompt workers to demand higher wages to compensate for rising living costs.
Experts also said the CPI probably underestimates the pace at which living costs for foreign workers are rising, and hence the rate at which Singapore’s edge in the global competition for international talent is being eroded.
CIMB-GK economist Song Seng Wun noted that expatriates are likely to face much higher hikes in private home rentals and international school fees than what the CPI indicates.
Source: The Straits Times 26 Feb 08