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Singapore inflation stays at 26-year high

The Straits Times March 25, 2008

Prices jump 6.5%, driven by higher food, transport and housing costs

CONSUMER prices surged 6.5 per cent last month from a year ago, continuing a rate of increase not seen in 26 years.

Food, transport and housing costs were again the main drivers as a confluence of external and internal factors kept last month’s inflation at just a shade off January’s 6.6 per cent.

The figure – released by the Department of Statistics yesterday – was broadly within market expectations. A Bloomberg News poll of 17 economists tipped a rate of 6.8 per cent.

Experts said rising prices will persuade the Monetary Authority of Singapore (MAS) to keep its policy of allowing the local currency to strengthen, to help fight off higher prices of imported goods.

But there is less consensus as to whether the central bank will get more aggressive when it holds its scheduled review next month.

Any tightening of monetary policy will hurt an already slowing economy.

‘February’s consumer price index moderated a touch but still stayed elevated,’ said Goldman Sachs economists Mark Tan and Michael Buchanan, who expect inflation to peak at around 7 per cent in the first half of the year.

Prices of meat and poultry, cooking oils and dairy products clocked double-digit gains, while rice, cereal and fruit cost almost 10 per cent more than they did last year.

High oil prices also made themselves felt in electricity bills and at petrol pumps.

Indeed, transport costs jumped 9.6 per cent, boosted also by higher taxi fares and car prices.

Housing costs surged the most at 8.8 per cent. But this was mostly a pass-on effect from January’s one-off revision in annual home values.

Health-care costs rose 7.4 per cent from higher hospitalisation fees and medical consultation charges – and also as Chinese herbs became costlier.

Standard Chartered Bank economist Alvin Liew said sustained increases in this area are of concern, especially as the population gets older.

He noted that the sector is especially dependent on foreign nurses. Competition for these workers and the rising currencies of their home countries may be driving up wage costs in Singapore.

The statistics department also highlighted foreign maid salaries, holidays, cable subscriptions and cigarettes as other significant sources of inflation.

The Trade and Industry Ministry issued an accompanying statement yesterday, saying the ‘underlying momentum in inflation remained stable’. It expects this to decline ‘during the year’ and is retaining its forecast of 4.5 to 5.5 per cent for annual inflation.

Still, Mr Tan and Mr Buchanan believe the MAS will move next month to allow for a faster appreciation of the Singapore dollar.

‘Slowing growth is an obstacle…but in our view, the easing in fiscal settings revealed in the 2008 Budget and low interest rates will provide a buffer to growth,’ they said.

But Citigroup economist Kit Wei Zheng reckons the MAS will stay put as growth concerns take precedence.

He raised his full-year inflation forecast to 5.4 per cent, ahead of the latest data. But he also slashed his economic growth estimate to 4.7 per cent, from 5.2 per cent, citing worsening United States conditions.

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