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Singapore inflation rate edges up 2% on-year in August [24-09-2013]  
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SINGAPORE: Singapore's headline inflation rate edged up to 2.0 per cent year-on-year in August, up from 1.9 per cent in July.

The Monetary Authority of Singapore (MAS) said the higher CPI-All Items inflation was due to higher costs of accommodation, services and food, which was partly offset by the smaller gain in private road transport cost.

August's headline inflation rate, which represented the fourth straight month of increase, is in line with economists' forecasts.

Accommodation cost was the key contributor in August, increasing by 4.2 per cent compared to 2.6 per cent in July. This was due to a disbursement of service & conservancy charges (S&CC) rebates for HDB households in July.

MAS said imputed rentals on owner-occupied accommodation (OOA) contributed 0.7 percentage point to overall inflation, down slightly from 0.8 percentage point in July, reflecting softer conditions in the housing rental market.

Services inflation picked up slightly to 2.7 per cent in August from 2.5 per cent a month earlier, led by a stronger rise in cable TV charges and tertiary education fees. Food prices increased by 2.4 per cent in August, up from 2.1 per cent in July, mainly due to costlier hawker and restaurant meals.

Meanwhile, private road transport cost saw a smaller gain of 0.1 per cent in August. It had risen 2.0 per cent in the previous month.

However, economists warn that prices could rise again.

Francis Tan, an economist at United Overseas Bank, said: "With the recent announcement that the COE will be tweaked - whereby some of the Category A vehicles will be going to Category B next February - we do see some evidence that there are more people pouring into car showrooms, thinking that prices next year will be rising up so they might as well buy now.

“So that may cause COE prices over the next few months starting from September to be edging up towards the higher side."

Petrol pump prices rose at a more moderate pace, in line with the recent trend in global oil prices.

MAS Core Inflation, which excludes the costs of accommodation and private road transport, rose to 1.8 per cent in August from 1.6 per cent in July due to slightly higher contributions from food and services.

MAS said overall imported inflation will remain generally subdued for the year. However, domestic cost pressures are expected to persist given the continuing tightness in the labour market. It therefore expects a slight pick-up in the pass-through from accumulated cost increases to prices of consumer services.

DBS Bank said the underlying cost pressure within the economy remains extremely high.

It added that headline inflation could breach the 4 per cent mark next April, driven by a tight labour market and higher business cost.

And some of these costs will likely be passed on to consumers.

Joey Chew, assistance vice president for research at Barclays, said: “So far, the pass-through has been quite benign because we had uncertainty in growth outlook and meanwhile, the labour market just keeps continuing to tighten.

“I think it will persist, especially now that the MOM (Manpower Ministry) is tightening regulations not only on low-skilled workers but also high-skilled workers. So the labour market is really going to be tight for the next few years.” 

MAS Core Inflation is expected to rise moderately for the rest of the year and average 1.5 to 2.5 per cent in 2013.

Meanwhile, MAS expects imputed rentals on OOA to likely continue to increase at a slower pace over the rest of the year as more housing units come on-stream. However, COE premiums could be volatile over the short-term, in light of the recently announced motor vehicle-related policy measures.

For 2013, CPI-All Items inflation is expected to be 2 to 3 per cent. 

Meanwhile, economists do not expect the central bank to ease or further tighten its current monetary policy in its upcoming review in October.

DBS Bank's senior economist Irvin Seah said: "We expect the MAS to maintain its current appreciation stance with no change in the slope or the width of the band in the upcoming policy review."

Some economists said the central bank is also not likely to allow the Singdollar to strengthen further. That is because some regional currencies like the ringgit and the rupiah have depreciated in recent months, and a stronger Singdollar will hurt exporters here.

Source:BLOOMBERG
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