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Costlier food not a big worry for Singapore: Economists
By Fiona Chan, Assistant Money Editor
WORLD food prices have recently jumped to record highs, causing consternation among Asian countries already grappling with the rising inflation that comes with strong economic growth.
Fortunately for Singapore, pricier food will cause a smaller jump in inflation here than in other economies in the region, economists say.
This is mainly because food accounts for only about a fifth of the basket of goods used to calculate inflation here, compared with a third in many other Asian countries such as Malaysia, Thailand and Indonesia.
This reflects greater affluence here where a smaller proportion of consumer spending typically goes to food, as well as the relatively higher costs of cars and homes in Singapore.
In the Philippines, the most extreme example, food items make up almost half of the average household's consumption.
Still, rising prices of crops like rice and wheat will add about 0.5 to 0.6 percentage points to Singapore's overall inflation this year, Bank of America Merrill Lynch economist Chua Hak Bin said. This is up from 0.4 percentage points last year.
Barclays Capital economist Leong Wai Ho also expects food inflation to add 0.5 percentage points to Singapore's inflation this year, which he expects to be 2.6 per cent. But food is 'not going to be the dominant driver of inflation', he told The Straits Times.
Another reason for the limited impact is that Singapore imports most of its food, and the appreciating Singapore dollar helps counter some of the increase in the price of food imports, said Dr Chua.
In November, food inflation in Singapore was only 1.8 per cent, compared with double-digit increases in some Asian countries, he noted.
'An important part of this is that a stronger Singdollar is helping to offset somewhat the rise in global food prices.'
It also helps that Singapore has consciously tried to diversify its food sources, said Credit Suisse economist Kun Lung Wu.
'Singapore is very open and tends to import a variety of food from a variety of places,' he said. 'As long as we don't see a rise in food prices in every single country, Singapore won't be too affected.'
But in the worst case scenario of a global food crisis, Singapore will feel an immediate inflationary impact, Mr Wu added. According to his research, if food prices spike 30 per cent within one quarter, that will immediately add 2 percentage points to Singapore's inflation.
Such a drastic situation, however, is unlikely to occur, said economists.
'Rice prices are already falling off their peak, reflecting the improving weather conditions...this bout of food inflation might prove short- lived,' said Mr Leong.
Still, inflation is a key concern for Singapore from sources other than food.
Transport costs will be a major contributor to rising consumer prices, with the prices of certificates of entitlement and fuel expected to go up, along with MRT fares, said Dr Chua.
'The other thing is that the labour market is very tight, with unemployment at 2.1 per cent. Now that levies on foreign workers have been raised on Jan 1, some of that will translate into higher costs as well,' he added.
Mr Leong also said higher wages are a worry - but he was referring to those in China. 'China is exporting its inflation to trading partners including Singapore,' he said. 'Wages in China have grown by leaps and bounds, last year particularly, and we're starting to see signs that lower-margin industries are starting to pass on these costs to overseas buyers.'
The Government here has forecast inflation to come in at 2 to 3 per cent this year, but Dr Chua projects inflation to be about 4.5 per cent in the first quarter after hitting 4.8 per cent in December.
By Fiona Chan, Assistant Money Editor
WORLD food prices have recently jumped to record highs, causing consternation among Asian countries already grappling with the rising inflation that comes with strong economic growth.
Fortunately for Singapore, pricier food will cause a smaller jump in inflation here than in other economies in the region, economists say.
This is mainly because food accounts for only about a fifth of the basket of goods used to calculate inflation here, compared with a third in many other Asian countries such as Malaysia, Thailand and Indonesia.
This reflects greater affluence here where a smaller proportion of consumer spending typically goes to food, as well as the relatively higher costs of cars and homes in Singapore.
In the Philippines, the most extreme example, food items make up almost half of the average household's consumption.
Still, rising prices of crops like rice and wheat will add about 0.5 to 0.6 percentage points to Singapore's overall inflation this year, Bank of America Merrill Lynch economist Chua Hak Bin said. This is up from 0.4 percentage points last year.
Barclays Capital economist Leong Wai Ho also expects food inflation to add 0.5 percentage points to Singapore's inflation this year, which he expects to be 2.6 per cent. But food is 'not going to be the dominant driver of inflation', he told The Straits Times.
Another reason for the limited impact is that Singapore imports most of its food, and the appreciating Singapore dollar helps counter some of the increase in the price of food imports, said Dr Chua.
In November, food inflation in Singapore was only 1.8 per cent, compared with double-digit increases in some Asian countries, he noted.
'An important part of this is that a stronger Singdollar is helping to offset somewhat the rise in global food prices.'
It also helps that Singapore has consciously tried to diversify its food sources, said Credit Suisse economist Kun Lung Wu.
'Singapore is very open and tends to import a variety of food from a variety of places,' he said. 'As long as we don't see a rise in food prices in every single country, Singapore won't be too affected.'
But in the worst case scenario of a global food crisis, Singapore will feel an immediate inflationary impact, Mr Wu added. According to his research, if food prices spike 30 per cent within one quarter, that will immediately add 2 percentage points to Singapore's inflation.
Such a drastic situation, however, is unlikely to occur, said economists.
'Rice prices are already falling off their peak, reflecting the improving weather conditions...this bout of food inflation might prove short- lived,' said Mr Leong.
Still, inflation is a key concern for Singapore from sources other than food.
Transport costs will be a major contributor to rising consumer prices, with the prices of certificates of entitlement and fuel expected to go up, along with MRT fares, said Dr Chua.
'The other thing is that the labour market is very tight, with unemployment at 2.1 per cent. Now that levies on foreign workers have been raised on Jan 1, some of that will translate into higher costs as well,' he added.
Mr Leong also said higher wages are a worry - but he was referring to those in China. 'China is exporting its inflation to trading partners including Singapore,' he said. 'Wages in China have grown by leaps and bounds, last year particularly, and we're starting to see signs that lower-margin industries are starting to pass on these costs to overseas buyers.'
The Government here has forecast inflation to come in at 2 to 3 per cent this year, but Dr Chua projects inflation to be about 4.5 per cent in the first quarter after hitting 4.8 per cent in December.
