Business

Singapore inflation accelerates as car prices surge

April 23, 2012

Data from MTI showed housing and transport were the biggest contributors to inflation in March.Data from MTI showed housing and transport were the biggest contributors to inflation in March.SINGAPORE, April 23 — Singapore’s inflation accelerated sharply in March, led by a jump in the cost of cars and housing, suggesting the central bank may tighten monetary policy further when it comes up for review in October.

The city-state’s consumer price index (CPI) rose 5.2 per cent in March from a year earlier, the government said today, far exceeding February’s 4.6 per cent pace and beating the estimates of all 11 economists polled by Reuters.

“Singapore is in danger of losing its low inflation status,” Robert Prior-Wandesforde of Credit Suisse said in a client note.

“The current episode is the second ‘major’ inflation shock Singapore has experienced in the last four years; but what makes this time different from 2008 is that inflation in most other Asian countries remains well contained.”

Headline inflation “could average around five per cent year-on-year in the first half before easing gradually in the second half of 2012,” the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS) said in a joint statement.

They said housing would remain the largest contributor to inflation this year as rental contracts were renewed at “considerably higher” levels, especially in government-built HDB apartments, which tend to be rented out to people on lower incomes.

Housing, which rose 9.1 per cent from a year earlier, and transport, which rose 8.6 per cent, were the biggest contributors to inflation in March, data from MTI showed.

Economists noted that inflationary pressures in Singapore have begun to emerge in other categories, particularly those that are more labour-intensive.

“If we do see stronger price pressures, especially from healthcare and education, hinting at greater pass-through of wage costs, then the chances are (MAS) might do something else in October,” said Barclays economist Joey Chew.

The central bank surprised financial markets with its half-year monetary policy statement this month by saying it will let the Singapore dollar appreciate at a slightly faster pace because of persistent inflationary pressures.

MAS also raised its headline inflation forecast for 2012 to 3.5-4.5 per cent from 2.5-3.5 per cent.

Its outlook for core inflation, which excludes private road transport and accommodation costs, was raised to 2.5-3.0 per cent from 1.5-2.0 per cent.

A new entry-level Toyota Vios sedan now costs S$107,000, or approximately RM262,611, including COE. A new entry-level Toyota Vios sedan now costs S$107,000, or approximately RM262,611, including COE. Domestic pressures

While higher oil prices have played a part, inflation in Singapore is mainly being exacerbated in areas that make it harder for companies to bring in low-cost foreign workers, as well as moves to curb the number of cars.

For example, a certificate of entitlement (COE), which adds to the cost of buying a car in Singapore, has risen by nearly 40 per cent since the start of the year, resulting in a spike in vehicle prices.

A new entry-level Toyota Vios sedan now costs S$107,000 (RM262,611) including COE, up from around S$77,000 at the start of the year, according to motoring website SGcarmart.com.

“(COE) premiums are likely to rise further once the reduced annual vehicle growth of 0.5 per cent from the current 1.5 per cent kicks in from August,” said Chua Hak Bin, regional economist at Bank of America Merrill Lynch.

Wage pressures are also building in the city-state, with transport company ComfortDelgro announcing it will raise the basic pay for bus drivers by 16 per cent in May.

Leslie Tang, an economist at OSK-DMG, said the main factors driving inflation were domestic and did not affect the rest of the region.

“Since 2008, most of the inflation in Singapore is due to policy-induced factors. Over 70 per cent of the increase in the CPI has been due to housing and transport,” he said.

“But there are upside risks in the region due to policy measures. In Malaysia, it is the cuts in subsidies that may take place after the elections. In Indonesia, the fuel price subsidies will have to be reduced.” — Reuters

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