Inflation eases to 3.5% - lowest in 2 1/2 years

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The Straits Times
www.straitstimes.com
Published on Apr 24, 2013
Inflation eases to 3.5% - lowest in 2 1/2 years

Consumer price index falls with weaker car prices and softer housing market

By Aaron Low Assistant Money Editor

WEAKER car prices have helped to slam the brakes on Singapore's inflation rate, which has eased to its slowest pace in more than two years.

A softer housing market also played a part in getting the consumer price index (CPI) down to 3.5 per cent last month compared with the same month last year.

That is the lowest monthly CPI rate since October 2010 - and well down from February's 4.9 per cent rate.

Core inflation, which excludes private road transport and accommodation, also dipped to 1.7 per cent last month, falling from 1.9 per cent in February.

The Government has made a concerted effort to rein in demand for both homes and cars to tackle stubbornly high inflation levels.

Analysts said March's figures indicate the tide is finally turning. They said housing and transport costs - both major contributors of inflationary pressures over the past two years - are showing firm signs of receding.

Housing costs rose 4.1 per cent last month, also the slowest pace in more than two years.

Private road transport costs rose 8.6 per cent in March, far lower than 17.4 per cent in February.

This is expected to fall drastically as government measures to cool the car market will affect prices from this month.

The measures include tighter car-loan restrictions.

Car dealers had already adjusted car prices in response to the February announcement, the Trade and Industry Ministry and the Monetary Authority of Singapore (MAS) said in a statement.

They added that although certificate of entitlement premiums could fluctuate in the months ahead, they should contribute less to overall inflation.

"Overall inflation should recede from its first quarter high," said a joint statement.

But they continued to flag the possible inflationary impact of the tight labour market, with unemployment at close to record lows of 1.8 per cent.

Health-care costs rose 3.9 per cent last month from March last year, while education and stationery costs also grew 3.5 per cent.

Still, Barclays Capital economist Joey Chew said the multi-pronged approach of loan restrictions, strong exchange rate policy and targeted subsidies for poorer households is succeeding at taming inflation.

"I think the MAS and Government are more on top of inflation than they have been in a while," she said.

Citigroup economist Kit Wei Zheng believes that inflation will keep sliding for the rest of the year, trending below the 3 per cent mark.

This should bring CPI inflation to about 3.2 per cent, he said, which is at the lower end of the official forecast range, which is now between 3 per cent and 4 per cent.

With inflation now less of a concern than last year, Ms Chew believes that the bigger worry this year will be of slowing growth.

Recent economic data from China, the United States and Europe have been disappointing and could dampen growth here.

"Externally, growth appears to be hitting a soft patch again while domestically, we still have all these restructuring drags," she said.

"But perhaps lower inflation will help support consumption and also alleviate cost concerns of businesses."

aaronl@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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