Singapore Sept inflation far higher than forecasts

Singapore Sept inflation far higher than forecasts
PHOTO: Singapore Sept inflation far higher than forecasts

SINGAPORE - Singapore's consumer price index rose by a stronger-than-expected 4.7 per cent in September from a year earlier as the costs of private road transport and accommodation climbed.

The Monetary Authority of Singapore's (MAS) core inflation measure rose 2.4 per cent year-on-year, faster than August's 2.2 per cent.

Economists polled by Reuters had expected September inflation to edge higher to 4.2 per cent from August's near two-year low of 3.9 per cent.

Core inflation excludes the cost of accommodation and private road transport, which are strongly influenced by government policy, and is the figure the MAS pays more attention to when deciding monetary policy.

In mid-October, the MAS defied forecasts by keeping monetary policy tight and allowing the Singapore dollar to appreciate at its current pace as it warned of persistent inflationary pressures in a slowing economy.

Singapore's trade-dependent economy contracted more than expected in the third quarter and barely avoided a recession due to a revision to the second quarter numbers.

KEY POINTS:

- Private road transport was the biggest contributor to September inflation, rising 10.8 per cent from a year earlier. The rise in August was 6.3 per cent.

- Accommodation costs rose 7.7 per cent in September, higher than August's 7.4 per cent.

- Headline inflation will be slightly above 4.5 per cent in 2012 before easing to 3.5 to 4.5 per cent in 2013, the Ministry of Trade and Industry (MTI) and MAS said, reiterating forecasts made in the central bank's October monetary policy statement.

- MTI and MAS said core inflation will be broadly stable and average around 2.5 per cent this year and 2-3 per cent in 2013.

COMMENTARY:

TIM CONDON, ECONOMIST AT ING FINANCIAL MARKETS

"I don't see they (MAS) have any policy options apart from increasing the gradient or doing something to tighten monetary conditions. I am a little bit sceptical about the policy's effectiveness."

"It is among the highest inflation in the region. Singapore and Hong Kong, they are the two richest economies. It is not a surprise in my judgment. It is linked with your exchange rate policy that ties short-term interest rates to US rates and in both countries you've got conditions that short-term interest rates will remain zero for an extended period."

"That is stoking expectations of property price inflation, which then feeds into consumer price index expectations."

"They have just promulgated the fifth property package (to cool the market) and they will have to do more."

CHUA HAK BIN, ECONOMIST AT BANK OF AMERICA MERRILL LYNCH

"I guess it justifies why MAS probably stayed tight."

Asked if the government is losing the fight against inflation: "There is a risk that it could go that way."

"Going to next year, it's very possible that private transport costs can accelerate because we know that, from February onwards, the vehicle growth rate will be cut again."

"The government may have to go back to the drawing board and just see component by component where it can try to address some of these pressures."

"All the companies including hotels, food and beverage, retail, all the SMEs are already complaining of acute shortages and there is a danger of everybody just fighting for the same pool of workers. There is a danger of this wage price spiral getting out of hand."

FRANCIS TAN, ECONOMIST AT UNITED OVERSEAS BANK

"The weightage of private road transport is rather high and that steers the entire CPI basket."

"The recent October policy is not going to be of much help.

It's not imported inflation that we are looking at right now but cars and rents. The tight labour market and wage pressures are going to raise business costs and trickle to expected inflation."

"The government has to do something else and not rely just on the exchange rate tool."

"Going forward, there could be more administrative measures for housing."

WAI HO LEONG, REGIONAL ECONOMIST AT BARCLAYS

"Looking across the spectrum we're starting to see persistent price increases in services cost, namely healthcare.

It shows there's an underlying force, an upward bias led by wages, which is impacting more of services component."

"Although weaker growth means demand side pressures may be slightly lower, but there's an underlying bias that will show up in the numbers through core inflation."

"All we can probably do, besides keeping the strong currency bias, is to find ways of phasing in this structural wage pressures on the economy, for example relaxing immigration by guiding wage expectations for certain skilled spectrums which are in tight supply."

"It might push the government to be a bit more flexible on the way it implements the tighten on foreign labour policies."

MARKET REACTION:

- The Singapore dollar was at around 1.2207 to the US dollar.

- The benchmark FTSE Straits Times Index was up 0.2 per cent.

This website is best viewed using the latest versions of web browsers.