Housing, transport push inflation up in July

Business Times: Wed, Aug 24
(SINGAPORE) Inflation outstripped expectations to hit 5.4 per cent in July, the fastest year-on-year hike in consumer prices since January’s 5.5 per cent. Last month’s acceleration, driven especially by larger jumps in housing and transport, sugges…
(SINGAPORE) Inflation outstripped expectations to hit 5.4 per cent in July, the fastest year-on-year hike in consumer prices since January’s 5.5 per cent.

Last month’s acceleration, driven especially by larger jumps in housing and transport, suggests that monetary policy will have to remain tight despite slowing growth, private sector economists say. They had expected July inflation to slow to a consensus 5 per cent from June’s 5.2 per cent.

Sequentially too, the consumer price index (CPI) rose a seasonally adjusted 0.6 per cent, up from the 0.4 per cent month-on-month increase in June, the Department of Statistics said yesterday.

Housing costs, which include imputed rentals and utilities tariffs, rose 9.5 per cent in July, up from 8.8 per cent in June, as more leases were signed or renewed at higher rents. A hike in electricity tariffs this quarter, due to higher energy prices, also contributed to this.

Excluding accommodation, the CPI still rose 4.2 per cent. Accommodation carries a weight of 20 per cent in the CPI basket of goods, but higher imputed rentals of owner-occupied accommodation do not affect the cash outlay of most households.

Transport, which accounts for 16 per cent of the CPI, saw the largest jump last month – 11.5 per cent – due to a sharp increase in car certificate of entitlement (COE) premiums from a year ago. While premiums fell this month, the one per cent public transport fare hike will temper that from October onwards.

Food, which accounts for more than a fifth of the CPI, saw prices 3 per cent up from last July with dearer prepared meals, seafood, dairy products and eggs, meat and poultry and fruit.

Aside from housing and transport, the prime inflation drivers all this year, domestic cost pressures seem ‘more buoyant than initially anticipated’, says OCBC economist Selena Ling.

So though talk of a technical recession amid contracting exports is rife, ‘demand-led price pressures continue to be seen’, notes Barclays Capital economist Leong Wai Ho, who estimates that domestic services contributed 2.9 percentage points to July’s headline inflation.

‘Producers and retailers have been passing on higher electricity and rent costs, and wage inflation is also gradually feeding through,’ says Mr Leong. He raised his full-year inflation forecast to 4.8 per cent, the upper end of the official 4 to 5 per cent forecast range.

Inflation ought to slide in the months ahead as COE premiums, fuel and commodity prices ease, but its unexpected persistence so far, coupled with the gloomy global economic outlook, ‘presents a bit of a challenge for policymakers’, says HSBC economist Leif Eskesen.

Economists now expect the Monetary Authority of Singapore (MAS) to keep a tight policy stance come October, of allowing the Singapore dollar to appreciate gradually against a trade-weighted basket of currencies, unless a deeper recession strikes. The Singapore dollar has risen 6.2 per cent against the US dollar so far this year.

Separately, Asian Development Bank (ADB) chief economist Changyong Rhee said at an event in Singapore yesterday that ADB is likely to raise its 2011 inflation forecast for Asia above the current 5.4 per cent after consumer prices rose more than expected in the first half.

Source: Business Times © Singapore Press Holdings Ltd

About Propertyguru Expert

Website contend is hand picked and high demand. Marketing Manager at Huttons Asia Pte Ltd. Indonesian Focusing in Private Residential Singapore. *Service Quality Assured. *Top 300 producer in 2011.