Inflation set to ease; price rises have hit lower-income more

Inflation set to ease; price rises have hit lower-income more

Lower-income households were hit a little harder by the rising cost of essentials such as food and health care in the first half of the year, data out yesterday showed.

But the overall rate of consumer price rises is set to ease in the second half of this year. Inflation has already begun slowing, falling to a three-month low in June as car prices and accommodation costs both moderated.

The poorest one-fifth of households were subject to an inflation rate of 2 per cent in the first half of the year, the Statistics Department said yesterday.

This was higher than the 1.7 per cent rise affecting both those in the top one-fifth of the income distribution range as well as the middle 60 per cent.

The numbers exclude imputed rentals, which are a gauge of how much a household would spend on rent if its occupants did not own the house they live in - assuming they own not rent.

All income groups faced hikes in food and health-care costs, but those in the lowest one-fifth spend a larger share of their income on these items and so were hit harder, the department said.

School and tuition fees, travel and medical treatment also contributed to rising costs for all.

Consumer prices across the economy rose 1.7 per cent in this year's first half compared with the same period last year. Official forecasts tip full-year inflation to be 1.5 per cent to 2.5 per cent.

Inflation is expected to ease in this half of the year owing to lower imputed rentals and car prices, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said yesterday. Full-year inflation is expected to come in at the lower end of the official forecast range, as car prices are likely to "exert a slight drag on overall inflation given the larger-than-expected increase in car COE quotas".

Price increases in transport and housing have been big drivers of inflation in past years.

The latest monthly inflation figures may signal the start of this moderation - consumer prices rose just 1.8 per cent in June over the same month last year, down from 2.7 per cent in May.

This was mainly due to a smaller increase in car prices. Private road transport costs edged up 2.8 per cent last month from May's 8.1 per cent surge, due to a sharp correction in certificate of entitlement premiums. Accommodation costs also went up at a slower pace last month as imputed rentals picked up more modestly.

The latest data has prompted some economists to lower forecasts. Bank of America Merrill Lynch economist Chua Hak Bin expects inflation to come in at 1.8 per cent this year, down from a previous estimate of 2.2 per cent.

"Housing inflation will likely remain subdued with the onset of newly completed housing units. Car financing measures and the total debt servicing framework would also continue to curb excessive spending," he said.

"Rising wages have pushed service prices higher, but the pressure has been manageable and offset by slower transport and housing inflation."

MAS and MTI said core inflation, which excludes costs of private road transport and accommodation, is likely to stay high and is set to be 2 per cent to 3 per cent for the full year.

The core inflation measure is seen as a better gauge of out-of-pocket cash expenses for most households. It inched down slightly to 2.1 per cent last month from May's 2.2 per cent, as steeper food price increases were offset by a slight decline in services inflation.

This article was first published on July 24, 2014.
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