Inflation! Inflation?

MAS also expects inflation to reach 4% by year end before it might taper down to 2-3% next year. With 3.7% inflation rate right now, it is the peak since 2009 and the last recent peak was a few months ago when it hit 3.2%.  This sounds worrying if seen out of context. In 2008, fueled by rising housing prices and where housing was a 21% chunk of the Consumer Price Index, the inflation rate was then a 25-years  savings-eroding high of 6.6%. Anyway, you can get a rough idea of where Singapore is at the moment in terms of inflation rate over the years.

Singapore annual inflation at 20-month high in Sept

SINGAPORE, Oct 25 (Reuters) – Singapore’s annual inflation rate accelerated to a 20-month high of 3.7 per cent in September, the government said, but analysts noted the central bank has already moved to cap rising prices.

The city-state’s consumer price index was up a seasonally-adjusted 0.2 per cent from August, the Department of Statistics said.

CONTEXT:

– The annual inflation rate in September is the highest since January 2009.

– The central bank, while tightening monetary policy earlier this month, said it saw the headline CPI rising to around 4.0 per cent by the end of the year and staying high in the first half of 2011 before moderating.

– The central bank said it saw the headline CPI rising to around 4.0 per cent by the end of the year and stay high in the first half of 2011 before moderating.

– The monetary authority widened the trading band for the Singapore dollar for the first time since just after the September 2001 attacks on the United States, underlining the depth of its concern about volatility in international markets.

– The Singapore dollar has risen about 8.2 per cent against the U.S. dollar since the beginning of the year.

– Singapore’s economy contracted 19.8 per cent on a seasonally adjusted annualised basis in the third quarter but the government expects full-year economic growth at 13-15 per cent.

Here are some comments from analysts:

PENN NEE CHOW, ECONOMIST, UOB

“On a monthly basis, transport costs seem to have moderated, resulting in the marginal month/month increase in the CPI. We don’t see large increases in the CPI in the coming few months with transport and accommodation costs easing. Food prices might still see a rise incrementally, on higher commodity prices.

“But generally, it looks like September’s data seems to reinforce the view that inflationary pressures will not be that big a concern. We are keeping our view of the CPI inflation at 3 percent for 2010.

SONG SENG WUN, ECONOMIST AT CIMB RESEARCH

“The sequential number of 0.2 percent is within our expectation although the year-on-year number of 3.7 percent is slightly ahead of our expectation. But the overall direction is still within what the Monetary Authority of Singapore and what we are looking at.

“What the government will look at is if high inflation, whether due to food or non-food items, is going to translate to high expectations of wages.

“If there are signs that inflation may become more entrenched then they might have to move (the monetary policy) again in April.”

WAI HO LEONG, ECONOMIST AT BARCLAYS CAPITAL

“The rise (in CPI) is due mainly to administered price changes, like higher COE (car licence) prices and higher electricity tariffs in the last few months. We were actually expecting a higher (year-on-year) figure because COE prices went up by so much and hotel rates were also higher during Formula One.

“I don’t think this is further cause for concern as the government has already done something about it recently. The pace of appreciation of the Singapore dollar was tweaked up.

“But a possible issue could be that wage pressures have been rising, particularly in the last quarter and this could put some pressure on core inflation figures.”

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