SINGAPORE ECONOMY
Inflation hits 5.2% in March
Inflation hits 5.2% in March
INFLATION shot up an unexpectedly high 5.2 per cent last month as vehicle prices and housing rentals continued to escalate while rising wages added to health-care and education costs.
The sharp increase in the consumer price index (CPI), which caught out economists, reverses the trend of moderating inflation seen in the first two months of the year.
Prices rose 4.8 per cent in January and 4.6 per cent in February. The March figure raises the spectre of a further period of painful price rises.
The latest inflation figure also raises the possibility of further moves by the Monetary Authority of Singapore (MAS), which announced last week it would let the Singdollar appreciate at a faster pace.
The MAS may need to allow the currency to rise further, which helps to combat imported inflation, said Citigroup economist Kit Wei Zheng.
But OCBC economist Selena Ling said allowing the currency to appreciate may not help bring inflation down as domestic inflation may continue to rise.
While the usual suspects, car prices and housing costs, were again the main inflation drivers, health-care and other domestic services saw higher than normal price increases, the Department of Statistics report showed.
The cost of private transport leapt 9.6 per cent year-on-year last month compared with 4.3 per cent in February.
Accommodation cost increases eased from 10.2 per cent in February to 9.8 per cent last month but still remained the single largest contributor to inflation.
Even when housing rents, which form a large part of accommodation costs, were taken out of the CPI gauge, March inflation still posted a 4.1 per cent increase.
Consumers were also feeling the impact of a tight labour market and rising wages.
Bank of America Merrill Lynch economist Chua Hak Bin, noted that about 60 per cent of inflation is imported.
Health-care inflation hit 3.9 per cent last month, largely due to the cost of medical treatment, which was up 5.2 per cent from March last year.
Noting that the health-care sector employed many foreign workers, DBS economist Irvin Seah said the cost increases were due to measures to tighten the inflow of foreign workers. This will raise foreign labour costs, which will get passed on to consumers, he said.
The MAS and Trade and Industry Ministry said in a joint statement yesterday that inflation could average about 5 per cent year-on-year in the first half of this year before 'easing gradually' in the second half.
Economists said the easing would be due more to the fact that car price and rental increases probably will not go much higher.
Source: The Straits Times – 24 April 2012
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