Inflation eases in February

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#1
"Eases" to 5%? I think 5% is still amazingly high overall, and food prices will also continue to soar! It's a sad but true fact that without investments, it will be extremely hard to avoid or counteract the insidious effects of high inflation...... Confused

Mar 24, 2011
Inflation eases in February

But economists warn cost pressures remain as core inflation rises
By Fiona Chan, Assistant Money Editor

INFLATION in Singapore eased last month for the first time in months, but economists warned it is too early to rejoice over lower prices.

The overall consumer price index rose a smaller 5 per cent last month from a year earlier, compared with a 5.5 per cent jump in January, the Department of Statistics (DOS) said yesterday.

The last time year-on-year inflation moderated was in October last year.

On a month-on-month basis, consumer prices even fell slightly by 0.1 per cent between January and last month, DOS said. This was the first decrease since June last year.

Last month's drop was largely due to lower car prices, as the prices of Certificates of Entitlement (COE) declined, said Citi economist Kit Wei Zheng.

However, taking out car prices, another measure of inflation rose last month.

Core inflation - which excludes accommodation and transport costs to give a better picture of out-of-pocket cash costs for consumers - went up 0.3 per cent between January and last month, DOS said.

Part of this increase came from higher food prices, which rose 0.4 per cent in the period. Higher salaries for foreign maids and more expensive holidays also pushed up costs, according to DOS data.

But on a year-on-year basis, core inflation moderated slightly. It slid to 1.8 per cent last month from the same month last year, down from 2 per cent in January over the same month last year.

While the overall inflation numbers were lower than economists had expected, they believe inflationary pressures still remain.

'It is too early to produce a big sigh of relief,' said HSBC's chief economist for India and Asean, Mr Leif Eskesen.

'Inflation remains elevated and has been trending up over the past few months, held up by... underlying inflation pressures (which) are not likely to disappear anytime soon.'

Global commodity prices are still on the rise, fuelled by unrest in the Arab world, while high food prices are expected to linger, he said.

Services costs have also gone up, driven by rising wealth, a surge in home prices and higher electricity tariffs, said Barclays Capital economist Leong Wai Ho.

'The costs of domestic-oriented services, such as accommodation, health care, recreation and education, have risen steadily since May 2010,' he noted.

Out of the 5 per cent inflation number last month, services costs accounted for as much as 2 percentage points, Mr Leong said. But he said the rise in these costs was only half what it was in 2008.

Both Mr Leong and Mr Eskesen are among the economists who expect the Monetary Authority of Singapore (MAS) to tighten its monetary policy next month by letting the Singapore dollar strengthen more quickly.

Bank of America Merrill Lynch economist Chua Hak Bin, however, predicts the MAS will maintain its current stance, as a tighter policy might hamper growth.

'Inflation has probably peaked and growth is slowing. Elevated oil prices and the Japanese earthquake have increased the downside risks to growth,' he said.

fiochan@sph.com.sg

My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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