Shoppers pay for their groceries at check-out counters at a supermarket in Singapore
SINGAPORE: Singapore's consumer price index (CPI) increased by 4.5 per cent on-year in May, on account of higher costs of housing, transport and food - the same figure that was recorded in April.
Analysts said inflation may see a gradual decline in the next few months, but there are risks of domestic cost pressures.
Economists had expected inflation to moderate at around 4.1 per cent on the back of recent tightening measures by the central bank and easing global commodity prices.
Higher costs of utilities such as electricity and gas pushed housing costs higher in May, mainly due to the absence of rebates given out in April.
But analysts expect these costs to taper off as the government releases the next set of service and conservancy charges rebates this month.
Going forward, lower transaction volume and higher interest rates next year will also lead to lower housing prices, analysts said.
They said inflation may have peaked in January, and last month's 4.5 per cent rise is somewhat of an encouraging sign.
"On Singapore's perspective, I think we could actually see a very gradual decline in inflation. So that is good news for everyone and for policymakers, in a sense that earlier monetary action has already taken effect," said Irvin Seah, senior economist with DBS.
Data from the Department of Statistics showed inflation inched up 3.3 per cent on-year, if accommodation costs were excluded.
Last month, housing costs rose by 8.1 per cent due to higher accommodation costs and electricity tariffs.
Meanwhile, transport costs increased 7.5 per cent driven by higher car and petrol prices, and food prices also rose 2.8 per cent due to more expensive prepared meals and ingredients.
From January to May this year, the CPI was up 4.9 percent from the same period last year. Excluding accommodation costs, inflation rose 4.3 per cent.
Economists said the inflation coming from abroad may likely ease going forward, but they warned that a tight labour market and higher wages could push costs of domestic goods and services higher.
"Wages are likely to increase and that could actually translate into higher wage costs for companies. And companies will subsequently pass on this higher labour cost to consumers. So having higher wages is a positive thing for everyone, but then again, it's a double-edged sword," said Seah.
Although inflation came in higher than expected in May, analysts don't see further tightening by the central bank come October.
They added that the Monetary Authority of Singapore (MAS) will likely maintain its policy of a gradual appreciation for the Singapore dollar.
Selena Ling, head of Treasury Research and Strategy at OCBC Bank said: "At the end of the day, the policy makers will look at the growth-inflation trade-off. For now, they may adopt a wait-and-see kind of attitude and see how basically the economic and the inflation numbers come in and play out in the next three months."
Economists are forecasting between 4 and 4.5 per cent full-year inflation for 2011, higher than the 3 to 4 per cent forecast by the MAS.
Some said an upward revision to the inflation forecast, as well as GDP growth may likely happen in due course.
Via: http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1136724/1/.html
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