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Inflation set to be key challenge next year
Transport, housing, food drive prices to highest level since January 2009
By Fiona Chan, Assistant Money Editor
INFLATION is shaping up to be Singapore's major economic challenge next year, after consumer prices last month hit their highest level since January last year.
The consumer price index - the main measure of inflation here - shot up 3.8 per cent in November over the same month last year and crept 0.3 per cent ahead of October's level, said the Department of Statistics (DOS) yesterday.
Higher transport, housing and food costs were the main drivers of the year-on-year surge, but prices have also started to jump in other segments.
The costs of education, stationery, health care and recreation all rose at least 2.4 per cent last month over the same month last year. Housing costs were up 4 per cent, and food prices up 1.8 per cent.
Leading the field for price rises were those of petrol and cars, due respectively to pricier oil and more expensive certificates of entitlement (COEs). Together, they pushed up transport costs by a searing 9.4 per cent last month over a year ago.
While the higher price trend has been in line with expectations so far, the pace is set to accelerate over the coming months and could reach a peak of nearly 5 per cent next month, say economists.
Standard Chartered economist Alvin Liew is among those who flag rising prices as 'Singapore's key challenge in 2011'. He noted that apart from pricier cars and houses, higher services costs - such as in education and health care - will increasingly drive the rise in consumer prices.
'We expect inflation to average 3.4 per cent in 2011, following an estimated 2.9 per cent in 2010 - far above the 10-year average of 1.4 per cent,' he said.
Other Asian countries such as China and India have also seen inflation recently rise to levels two or three times the average since the Asian Financial Crisis in 1997, prompting central banks to hike interest rates in a bid to contain price rises.
Singapore uses the exchange rate rather than the interest rate to fight inflation, and the Monetary Authority of Singapore has allowed the currency to rise more steeply than usual. It is expected to continue the policy of currency appreciation and may even step up the pace as prices head upwards more quickly, economists said.
Inflation is officially forecast to hit 4 per cent early next year and round out the year in the 2 to 3 per cent range.
But ahead of that, inflation could hit 4.8 per cent this month because of a low base last year and as COE and wage costs keep escalating, said Bank of America Merrill Lynch economist Chua Hak Bin.
New car prices have already risen more than 10 per cent within a month because of more expensive COEs, and foreign worker levies due to kick in next year will aggravate wage pressures, he said.
Citigroup economist Kit Wei Zheng's own forecast for this month's inflation is 4.5 per cent. Apart from COE prices, he points to rising fuel costs - a growing concern now that oil has hit fresh two-year highs at more than US$90 a barrel.
Inflated car prices are proving a problem for consumers such as lawyer Vanessa Yeo, 25, who has had to repeatedly postpone her plans to buy a car.
'If a COE costs tens of thousands of dollars, that's at least half the cost of a car already,' she said. 'And even though prices are so high, the roads are still jammed, so it doesn't look like COE prices are going to come down that much even in the next few years.'
Meanwhile, property prices remain 'on the elevated side' despite cooling measures introduced earlier this year, said HSBC economist Leif Eskesen.
On a broader basis, the rapidly expanding Singapore economy is now operating near its limits, leading to stronger price pressures in the coming months, he said.
For the first 11 months of this year, the consumer price index has gained 2.7 per cent compared with the same period a year ago, DOS said yesterday.
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Transport, housing, food drive prices to highest level since January 2009
By Fiona Chan, Assistant Money Editor
INFLATION is shaping up to be Singapore's major economic challenge next year, after consumer prices last month hit their highest level since January last year.
The consumer price index - the main measure of inflation here - shot up 3.8 per cent in November over the same month last year and crept 0.3 per cent ahead of October's level, said the Department of Statistics (DOS) yesterday.
Higher transport, housing and food costs were the main drivers of the year-on-year surge, but prices have also started to jump in other segments.
The costs of education, stationery, health care and recreation all rose at least 2.4 per cent last month over the same month last year. Housing costs were up 4 per cent, and food prices up 1.8 per cent.
Leading the field for price rises were those of petrol and cars, due respectively to pricier oil and more expensive certificates of entitlement (COEs). Together, they pushed up transport costs by a searing 9.4 per cent last month over a year ago.
While the higher price trend has been in line with expectations so far, the pace is set to accelerate over the coming months and could reach a peak of nearly 5 per cent next month, say economists.
Standard Chartered economist Alvin Liew is among those who flag rising prices as 'Singapore's key challenge in 2011'. He noted that apart from pricier cars and houses, higher services costs - such as in education and health care - will increasingly drive the rise in consumer prices.
'We expect inflation to average 3.4 per cent in 2011, following an estimated 2.9 per cent in 2010 - far above the 10-year average of 1.4 per cent,' he said.
Other Asian countries such as China and India have also seen inflation recently rise to levels two or three times the average since the Asian Financial Crisis in 1997, prompting central banks to hike interest rates in a bid to contain price rises.
Singapore uses the exchange rate rather than the interest rate to fight inflation, and the Monetary Authority of Singapore has allowed the currency to rise more steeply than usual. It is expected to continue the policy of currency appreciation and may even step up the pace as prices head upwards more quickly, economists said.
Inflation is officially forecast to hit 4 per cent early next year and round out the year in the 2 to 3 per cent range.
But ahead of that, inflation could hit 4.8 per cent this month because of a low base last year and as COE and wage costs keep escalating, said Bank of America Merrill Lynch economist Chua Hak Bin.
New car prices have already risen more than 10 per cent within a month because of more expensive COEs, and foreign worker levies due to kick in next year will aggravate wage pressures, he said.
Citigroup economist Kit Wei Zheng's own forecast for this month's inflation is 4.5 per cent. Apart from COE prices, he points to rising fuel costs - a growing concern now that oil has hit fresh two-year highs at more than US$90 a barrel.
Inflated car prices are proving a problem for consumers such as lawyer Vanessa Yeo, 25, who has had to repeatedly postpone her plans to buy a car.
'If a COE costs tens of thousands of dollars, that's at least half the cost of a car already,' she said. 'And even though prices are so high, the roads are still jammed, so it doesn't look like COE prices are going to come down that much even in the next few years.'
Meanwhile, property prices remain 'on the elevated side' despite cooling measures introduced earlier this year, said HSBC economist Leif Eskesen.
On a broader basis, the rapidly expanding Singapore economy is now operating near its limits, leading to stronger price pressures in the coming months, he said.
For the first 11 months of this year, the consumer price index has gained 2.7 per cent compared with the same period a year ago, DOS said yesterday.
[email protected]
