Inflation in Singapore Accelerates: 24Jan2011

SINGAPORE: Inflation in Singapore accelerated to its quickest pace in two years in December.

Data from the Department of Statistics (DOS) showed that the consumer price index (CPI) rose by 4.6 per cent on-year, led by higher transport costs.

For the whole of last year, the CPI was up 2.8 per cent.

And the increase in prices was the most pronounced for high-income earners.

Analysts said inflation will continue to be high in the first quarter of this year, ranging between 3 and 5 per cent before tapering off.

They estimate the full-year inflation at 3.2 per cent in 2011.

Transport costs galloped 12.8 per cent year-on-year in December, led by higher costs of petrol and cars.

Housing and food were also more expensive in December. Housing costs rose 5.1 per cent, while food prices increased 2.1 per cent.

Inflation last month was higher than the 3.8 per cent recorded in November and also above analysts' estimates of a 4.5 per cent increase.

Excluding accommodation costs, the consumer price index moved up by 4.3 per cent.

Selena Ling, head of Treasury Research & Strategy, OCBC, said: "I think going forward, the expectations is because this is likely an election year, there may be a little bit more policy focus on trying to bridge the rising cost issues for the man on the street, I think, in particular for the lower income families."

Analysts said such government assistance could take the shape of healthcare, education and food subsidies as well as enhancement of the Workfare Income Supplement scheme.

DOS said the top 20 per cent income earners experienced an inflation rate of 3.1 per cent in 2010. This was higher than the 2.4 per cent inflation rate suffered by the bottom 20 per cent income earners.

The middle 60 per cent income earners were hit by a 2.7 per cent inflation rate.

Vishnu Varathan, an economist with Capital Economics, said: "In our view, the biggest risk still seems to be food inflation. Basically, not enough is being produced and the fact that over the years, affluence has grown means that the pattern of consumption is such that it becomes a lot more demanding on producers.

"And so production has not kept up with demand. Given the confluence of these two factors, food remains as the biggest wild card for inflation."

Analysts believe that should inflation continue to overshoot, further tightening by the Monetary Authority of Singapore could be on the cards in April.

- CNA/al

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