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PR Newswire
24-02-2012, 06:28 PM
Business Times - 24 Feb 2012
S'pore core inflation at 3-year high of 3.5%
It is likely to hover around 3% in next few months due to earlier cost increases
By TEH SHI NING
(SINGAPORE) Even before Budget 2012's measures have had a chance to work their way into higher consumer prices, evidence of pass-through from earlier cost increases, including labour cost hikes, has surfaced in January's inflation data.
Consumer price inflation eased to 4.8 per cent last month from 5.5 per cent in December, but core inflation, which strips out accommodation and private transport costs, soared to a three-year high of 3.5 per cent.
While the authorities have sought to assure that core inflation's spike from December's 2.6 per cent was not unforeseen and largely due to seasonal and base effects, private sector economists say that stubbornly high inflation - both core and headline - leaves the central bank with little room to ease monetary policy at its April review.
The 'alarming jump' in core inflation 'clearly reflects a build-up in underlying cost pressures', said DBS economist Irvin Seah. And 'wage cost pressures from a stricter foreign worker policy are starting to show', said Bank of America Merrill Lynch economist Chua Hak Bin, referring to the further tightening of access to cheaper labour from abroad in the form of cuts to foreign worker quotas at last Friday's Budget announcement.
Core inflation is likely to hover around 3 per cent in the next few months, as 'earlier cost increases, especially in the labour market, could continue to pass through to consumer prices', said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday in what several economists described as a 'hawkish' joint comment.
Headline 'CPI-All Items' inflation is likely to stay 'elevated and volatile' over the next few months too, the statement said.
One driver will be a continued increase in housing rentals as the 'temporary shortage of completed dwellings' pushes imputed rentals on owner-occupied accommodation higher in the near term.
Accommodation costs rose 10 per cent year on year in January, remaining the largest contributor to inflation last month. Of the 4.8 per cent rise in the consumer price index (CPI), 1.8 points came from hikes in the imputed rents of owner-occupied accommodation. Excluding this, the index (CPI-ex OOA) rose a lower 3.5 per cent from a year ago, slowing from a 4.3 per cent increase in December.
Another main culprit, private road transport costs, decelerated to rise 3.1 per cent from last January, when COE premiums had surged. But MAS and MTI expect this category of prices to 'remain high on average in view of the tight COE supply, with fluctuations from month to month', an outlook that Citigroup economist Kit Wei Zheng says is foreshadowed by record high COE premiums at the latest bidding exercise and higher oil prices.
But January's 3.5 per cent jump in core inflation - minus accommodation and private road transport costs - raised the most eyebrows. Explaining that this is 'consistent with expectations', MAS said that the jump from December was due to January 2011's low base after radio and TV license fees were scrapped as well as a seasonal uptick in food prices during Chinese New Year (which fell in February last year).
Of the 0.9 percentage point jump, 0.2 point was attributed to 'continued pass-through of labour cost increases to consumer prices, especially healthcare and education services', the authorities said.
They stuck to the official 2012 forecast for 2.5-3.5 per cent headline inflation and 1.5-2 per cent core inflation. Some private sector economists are, however, now predicting higher headline inflation of closer to 4 per cent.
MAS and MTI said their projections are based on 'some moderation in domestic and external cost pressures in the second half of the year' and may be reviewed if 'underlying price pressures turn out to be more persistent'.
Apart from domestic pressures of rising rentals and wages, Mr Seah believes that inflation may creep higher despite slower growth if oil prices spike on the back of political tensions in the Middle East.
With hints of inflation forecast upgrades ahead and a technical recession unlikely, Mr Kit thinks that yesterday's CPI release 'practically rules out MAS easing in April'. The consensus expectation that MAS will stick to a modest but gradual appreciation of the Singapore dollar is further supported by Budget 2012's contractionary fiscal impulse - since policy makers view the problem as 'too much, not too little, growth', he added.
S'pore core inflation at 3-year high of 3.5%
It is likely to hover around 3% in next few months due to earlier cost increases
By TEH SHI NING
(SINGAPORE) Even before Budget 2012's measures have had a chance to work their way into higher consumer prices, evidence of pass-through from earlier cost increases, including labour cost hikes, has surfaced in January's inflation data.
Consumer price inflation eased to 4.8 per cent last month from 5.5 per cent in December, but core inflation, which strips out accommodation and private transport costs, soared to a three-year high of 3.5 per cent.
While the authorities have sought to assure that core inflation's spike from December's 2.6 per cent was not unforeseen and largely due to seasonal and base effects, private sector economists say that stubbornly high inflation - both core and headline - leaves the central bank with little room to ease monetary policy at its April review.
The 'alarming jump' in core inflation 'clearly reflects a build-up in underlying cost pressures', said DBS economist Irvin Seah. And 'wage cost pressures from a stricter foreign worker policy are starting to show', said Bank of America Merrill Lynch economist Chua Hak Bin, referring to the further tightening of access to cheaper labour from abroad in the form of cuts to foreign worker quotas at last Friday's Budget announcement.
Core inflation is likely to hover around 3 per cent in the next few months, as 'earlier cost increases, especially in the labour market, could continue to pass through to consumer prices', said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday in what several economists described as a 'hawkish' joint comment.
Headline 'CPI-All Items' inflation is likely to stay 'elevated and volatile' over the next few months too, the statement said.
One driver will be a continued increase in housing rentals as the 'temporary shortage of completed dwellings' pushes imputed rentals on owner-occupied accommodation higher in the near term.
Accommodation costs rose 10 per cent year on year in January, remaining the largest contributor to inflation last month. Of the 4.8 per cent rise in the consumer price index (CPI), 1.8 points came from hikes in the imputed rents of owner-occupied accommodation. Excluding this, the index (CPI-ex OOA) rose a lower 3.5 per cent from a year ago, slowing from a 4.3 per cent increase in December.
Another main culprit, private road transport costs, decelerated to rise 3.1 per cent from last January, when COE premiums had surged. But MAS and MTI expect this category of prices to 'remain high on average in view of the tight COE supply, with fluctuations from month to month', an outlook that Citigroup economist Kit Wei Zheng says is foreshadowed by record high COE premiums at the latest bidding exercise and higher oil prices.
But January's 3.5 per cent jump in core inflation - minus accommodation and private road transport costs - raised the most eyebrows. Explaining that this is 'consistent with expectations', MAS said that the jump from December was due to January 2011's low base after radio and TV license fees were scrapped as well as a seasonal uptick in food prices during Chinese New Year (which fell in February last year).
Of the 0.9 percentage point jump, 0.2 point was attributed to 'continued pass-through of labour cost increases to consumer prices, especially healthcare and education services', the authorities said.
They stuck to the official 2012 forecast for 2.5-3.5 per cent headline inflation and 1.5-2 per cent core inflation. Some private sector economists are, however, now predicting higher headline inflation of closer to 4 per cent.
MAS and MTI said their projections are based on 'some moderation in domestic and external cost pressures in the second half of the year' and may be reviewed if 'underlying price pressures turn out to be more persistent'.
Apart from domestic pressures of rising rentals and wages, Mr Seah believes that inflation may creep higher despite slower growth if oil prices spike on the back of political tensions in the Middle East.
With hints of inflation forecast upgrades ahead and a technical recession unlikely, Mr Kit thinks that yesterday's CPI release 'practically rules out MAS easing in April'. The consensus expectation that MAS will stick to a modest but gradual appreciation of the Singapore dollar is further supported by Budget 2012's contractionary fiscal impulse - since policy makers view the problem as 'too much, not too little, growth', he added.
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