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PR Newswire
14-04-2012, 08:15 AM
The Straits Times
Apr 14, 2012
Cost of living likely to rise further this year
Govt raises CPI forecast to 3.5%-4.5%, citing high oil prices and labour costs
By Melissa Tan
THE cost of living looks set to go up further this year after the Government raised its inflation forecast, citing high oil prices and rising labour costs.
In its twice-yearly review released yesterday, the Monetary Authority of Singapore (MAS) said it expects the consumer price index - the key inflation gauge - to rise to 3.5 to 4.5 per cent this year, up by one percentage point.
Core inflation, which excludes cars and housing and therefore tracks the price of everyday necessities, is expected to go up to 2.5 to 3 per cent this year - also up by one percentage point.
Inflation in Singapore is often affected by external factors such as oil prices, which MAS said will likely remain high for the rest of the year. But a tight labour market domestically has also resulted in higher wage costs which companies will likely continue to pass on to consumers, added the central bank.
'Car prices could also rise further in response to the tight COE supply, especially if car de-registrations remain at current low levels,' it warned.
To alleviate these added inflationary pressures, MAS is tightening monetary policy and letting the Sing dollar appreciate faster. This helps to keep import prices down - crucial here given the country's reliance on imported food and oil.
'This policy stance will help anchor inflation expectations, ensure medium-term price stability, and keep growth on a sustainable path,' it stated.
It added, however, that core inflation will likely ease in the latter half of the year.
The MAS manages the exchange rate within an adjustable band against a basket of currencies of Singapore's main trading partners.
MAS' move comes amid the economy's stronger-than-expected expansion in the first quarter, which has dampened concerns about growth but will add to the inflation conundrum.
Gross domestic product (GDP) was 1.6 per cent higher in the first quarter compared with the corresponding period last year, based on advance estimates from the Trade and Industry Ministry. This beat the 1 per cent market consensus.
Analysts noted, however, that these anaemic figures belied the momentum of the growth upswing. On a quarter-on-quarter basis, GDP grew 9.9 per cent, reversing the 2.5 per cent contraction in the preceding three months. It was the strongest quarter-on- quarter growth since the first quarter of last year.
The strong showing was achieved on the back of a turnaround in manufacturing, which expanded 14.7 per cent from the preceding quarter. The construction sector grew by a robust 24.6 per cent.
This renewed expansion would have generated mixed feelings among policymakers trying to rein in ever-increasing prices amid a fairly robust economy, said economists.
'Stronger-than-expected GDP growth in the last two quarters... has caused the positive output gap to widen, tightened resource utilisation and hence caused core inflation to be higher than MAS had anticipated in October,' said Citi economist Kit Wei Zheng.
This was no doubt a factor encouraging the MAS to tighten the exchange rate stance, added Credit Suisse's Robert Prior-Wandesforde.
The central bank, however, left its growth forecast for the year unchanged at 1 to 3 per cent. 'The tail risks in the key industrialised economies have receded, but global growth is likely to remain below trend in the near term,' it said.
melissat@sph.com.sg
Apr 14, 2012
Cost of living likely to rise further this year
Govt raises CPI forecast to 3.5%-4.5%, citing high oil prices and labour costs
By Melissa Tan
THE cost of living looks set to go up further this year after the Government raised its inflation forecast, citing high oil prices and rising labour costs.
In its twice-yearly review released yesterday, the Monetary Authority of Singapore (MAS) said it expects the consumer price index - the key inflation gauge - to rise to 3.5 to 4.5 per cent this year, up by one percentage point.
Core inflation, which excludes cars and housing and therefore tracks the price of everyday necessities, is expected to go up to 2.5 to 3 per cent this year - also up by one percentage point.
Inflation in Singapore is often affected by external factors such as oil prices, which MAS said will likely remain high for the rest of the year. But a tight labour market domestically has also resulted in higher wage costs which companies will likely continue to pass on to consumers, added the central bank.
'Car prices could also rise further in response to the tight COE supply, especially if car de-registrations remain at current low levels,' it warned.
To alleviate these added inflationary pressures, MAS is tightening monetary policy and letting the Sing dollar appreciate faster. This helps to keep import prices down - crucial here given the country's reliance on imported food and oil.
'This policy stance will help anchor inflation expectations, ensure medium-term price stability, and keep growth on a sustainable path,' it stated.
It added, however, that core inflation will likely ease in the latter half of the year.
The MAS manages the exchange rate within an adjustable band against a basket of currencies of Singapore's main trading partners.
MAS' move comes amid the economy's stronger-than-expected expansion in the first quarter, which has dampened concerns about growth but will add to the inflation conundrum.
Gross domestic product (GDP) was 1.6 per cent higher in the first quarter compared with the corresponding period last year, based on advance estimates from the Trade and Industry Ministry. This beat the 1 per cent market consensus.
Analysts noted, however, that these anaemic figures belied the momentum of the growth upswing. On a quarter-on-quarter basis, GDP grew 9.9 per cent, reversing the 2.5 per cent contraction in the preceding three months. It was the strongest quarter-on- quarter growth since the first quarter of last year.
The strong showing was achieved on the back of a turnaround in manufacturing, which expanded 14.7 per cent from the preceding quarter. The construction sector grew by a robust 24.6 per cent.
This renewed expansion would have generated mixed feelings among policymakers trying to rein in ever-increasing prices amid a fairly robust economy, said economists.
'Stronger-than-expected GDP growth in the last two quarters... has caused the positive output gap to widen, tightened resource utilisation and hence caused core inflation to be higher than MAS had anticipated in October,' said Citi economist Kit Wei Zheng.
This was no doubt a factor encouraging the MAS to tighten the exchange rate stance, added Credit Suisse's Robert Prior-Wandesforde.
The central bank, however, left its growth forecast for the year unchanged at 1 to 3 per cent. 'The tail risks in the key industrialised economies have receded, but global growth is likely to remain below trend in the near term,' it said.
melissat@sph.com.sg
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