Prices of essentials will continue to rise

Prices of essentials will continue to rise
The tight labour market and escalating business costs mean prices of daily essentials such as food and services will continue to climb.

Singaporeans concerned that the city is becoming one of the world's priciest places to live in received some positive news yesterday with predictions that inflation will moderate for the rest of this year.

Yet, while official forecasts and economists' tips both say prices will rise more slowly in the coming months, consumers are unlikely to feel much immediate impact.

The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said yesterday that full-year inflation is expected to come in at the lower end of the official forecast range of 1.5 per cent to 2.5 per cent.

Some economists have also lowered their forecasts on the back of data yesterday that showed consumer price increases dipped to a three-month low of 1.8 per cent last month.

But the tight labour market and escalating business costs mean prices of daily essentials such as food and services will continue to climb.

The inflation forecast cuts are due mainly to expected dips in car prices and imputed rentals - a gauge of how much a household would spend on rent if its occupants did not own the house they live in.

This comes amid a tepid property market and certificate of entitlement (COE) quotas going up more than expected.

But cars are hardly a frequent purchase, particularly for those in lower-income households typically, the hardest hit by rising prices, while imputed rentals do not involve actual cash expenditures.

Meanwhile, core inflation - seen as a more accurate gauge of out-of-pocket cash expenses for most households - has been holding steady at 2 per cent or higher every month this year except February, even as the overall inflation number fluctuates at the mercy of volatile COE premiums.

MAS and MTI reiterated in a joint statement yesterday that "domestic cost pressures, particularly stemming from a tight labour market, are likely to remain the primary source of inflation" this year.

This is borne out in the higher official core inflation forecast - 2 per cent to 3 per cent for the full year, compared with overall inflation, which is tipped for a slightly lower 1.5 per cent to 2.5 per cent.

Economists have also warned that businesses feeling pressure from ongoing restructuring efforts will increasingly be forced to pass on rising costs to consumers.

The tight labour market will continue to be the key driver of cost inflation and impact labour-intensive businesses, particularly in the services sector, said OCBC economist Selena Ling.

Despite the headline inflation numbers, consumers can probably continue to expect prices of daily purchases to rise at a slow but steady clip.

This article was first published on July 24, 2014.
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