Housing sees prices falling, but central bank predicts inflationary trends to continue in second half, reports Team IFM
Singapore, May 27: Singapore’s consumer prices, already under pressure from rising labour costs, were propelled by a spike in transportation costs to almost double in April compared to the preceding month, official data released last week show, stoking fears that this would be the norm for the remaining months this year.
The fresh data from the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS), the city-state’s central bank, seems to confirm the bank’s forecast last month that inflationary trends would continue over the second half of 2014.
The latest all-item price Consumer Price Index or CPI, the headline inflation rate, spiralled 2.5 percent in April compared to the year-ago period. The rate was 1.2 percent in March, or about half that of the month under review.
The reading, which Reuters said was in line with the 2.6 percent median forecast by an analysts’ poll it had conducted, reflected the rise in automobile prices following a low base last year, thanks to the restrictions imposed on new car loans by the government in March 2013.
In its half-yearly macroeconomic review released late last month, MAS has predicted core inflation to curve upwards in the second half this year, saying companies were expected to pass increased staff expenses to consumers amid a “cyclical” economic recovery.
“Domestic business cost pressures are expected to persist and firms are likely to pass on accumulated costs, leading to broad-based price increases across the economy,” MAS said in the review.
Consequently, it said, core inflation – the rate of price hike that excludes changes in the prices of cars and accommodation – was likely to go up around 2.5 percent on an annualised basis over the next half of this year.
Interestingly, going by an earlier report this month from Singapore’s Economic Development Board, the inflationary trends don’t seem to have had any dampening effect on local manufacturers, who believe the next six months will usher in a period of good fortune for them thanks to an ongoing “economic recovery” in the US and Europe.
So much so, data culled by the Economic Board showed layoffs shrinking, reflecting the enhanced business confidence stemming from hopes of new orders.
“Business sentiments in the manufacturing sector is expected to be positive in the next six months ending September 2014, on the back of improved economic conditions in the US and Europe,” the Board said.
INFLATION SPANNER
But the spoilsport, it seems, have been spiralling automobile prices as well as transportation costs that led to the rate of inflation to double in April over the month before, though the MTI-MAS statement stressed that “for the whole year, car prices are likely to add negligibly to inflation”
The statement also refers to last year’s low base of prices, caused by the restrictions that led to a dip in Certificate of Entitlement (COE) premiums. The COE grants the holder to own and use a vehicle for 10 years; when demand is high, the cost of a COE or premiums can exceed even the value of the vehicle.
“This increase had been anticipated in the February and March inflation reports and largely reflected a rise in car prices due to the low base a year ago,” the MTI-MAS statement said. “All other major categories, except accommodation, also experienced slightly stronger price increases during the month.”
The official statement said the “CPI-All Items inflation is projected to come in at 1.5-2.5 percent in 2014”.
However, ANZ economist Daniel Wilson was sceptical of this figure. “For the full year, we expect headline inflation to come in at 2.7 percent, which is above the official forecast of 1.5 to 2.5 percent, with some downside pressure from accommodation costs,” Wilson told Singapore’s Today newspaper.
The joint statement said private road transport cost climbed by 7 percent in April, “reversing four consecutive months of decline”. This reflected the rise in COE premiums which was exacerbated by the low base in April 2013, it said, adding that petrol pump prices also edged up at a faster pace compared to the previous month.
“Inflation of private road transport costs, which is about 11.6 per cent of the CPI basket, will likely stay above 5 per cent in the coming months at least through the third quarter,” Wilson said.
The rental and housing sector, which accounts for a fifth of the inflation basket, witnessed prices falling in April sliding 1.1 percent from the preceding month. The statement said the trend is expected to continue.
“The rise in accommodation cost moderated further to 1.1 percent from 1.7 percent in March, mainly due to a smaller increase in imputed rentals on owner-occupied accommodation (OOA),” the statement said. “Given the large supply of newly-completed housing units, imputed rentals on
OOA are expected to stabilise this year.”
OVERSEAS LEG-UP
In an earlier report on first quarter analysis, corporate services provider Janus Corporate Solutions had echoed the view of the Economic Development Board, and dwelt at length on a busy business scene in Singapore and the reasons behind it – positive developments in the US and Europe.
“Singapore, with its strong business friendly fundamentals and its strategic location amidst the burgeoning Asian markets, continues to attract foreign investors and enterprises to set up business operations in Singapore,” Janus had said in its First Quarter Business Formation Report.
“There is a sharp spike in the number of private limited company registrations where it has increased by 10 percent in Q1 2014 against the previous quarter,” the company said in a statement.
Janus said the year-on-year growth rate of company formation was also significantly higher at 11.1 percent, with 32 percent of the new business formed in the first quarter boasting of foreign shareholders, “fortifying the strong reputation of Singapore as an efficient regional hub for international businesses”.
It also said while new business formations continue to be predominantly from wholesale trade and financial services sectors, the new business formations in IT and the retail sector have registered a marginal growth in their shares.
“The government’s drive to promote productivity and innovation appears to fuel the growth in the IT sector, and the strong domestic spending of the consumers buoys the retail sector,” it noted.
Janus COO Jacqueline Low referred to the “gradual recovery” of the global economy, saying the west is reversing its recessionary trend, and though marginal, the recovery is sustained and there are signs of continued growth.
“This recovery has increased the confidence of investors and entrepreneurs, which is evident from the sharp rise in the number of new businesses formed in the first quarter of the year,” Low said.
“Barring any inclement economic turmoil, we remain very positive for the rest of the year.”