Shamim Adam
Bloomberg
25 Sep 07
http://www.bloomberg.com/apps/news?pid=20601080&sid=a1nIJ4BJvhkk&refer=asia
Singapore’s consumer prices rose in August at the fastest pace in more than 12 years, suggesting the central bank will maintain a policy of allowing its currency to appreciate to damp inflation.
The consumer price index increased 2.9 percent from a year earlier, after gaining 2.6 percent in July, the Department of Statistics said today. That was the quickest pace since December 1994 and exceeded the 2.8 percent expected by economists. Prices rose 0.3 percent from July.
The central bank last month raised its forecast for inflation this year after prices gained the most in more than a decade in July following an increase in the goods and services tax, or GST. The Monetary Authority of Singapore, which has sought a “gradual and modest” strengthening in the currency since April 2004, will review its policy next month.
“Inflation pressures have increased with oil prices reaching record levels and the higher GST rate,” said Vishnu Varathan, an economist at Forecast Singapore. “I don’t see the MAS stepping away from its policy for an appreciation in the Singapore dollar anytime soon.”
The currency has gained 1.9 percent this year. It rose 0.2 percent to S$1.5047 against the U.S. dollar as of 1:02 p.m. local time from S$1.5071 on Sept. 21.
The central bank expects inflation in 2007 to be between 1 percent and 2 percent, it said on Aug. 27, up from a previous range of 0.5 percent to 1.5 percent. Consumer prices may rise as much as 2 percent next year.
Sales Tax
The government raised the goods and services tax by 2 percentage points to 7 percent on July 1 to make up for a revenue shortfall after corporate tax rates were reduced. The tax increase will add between 0.4 percent and 0.6 percent to consumer prices this year and next, the central bank has said.
Food prices, which make up 23 percent of the index, rose 3.3 percent in August from a year ago, following July’s 2.9 percent increase. From July, food prices gained 0.4 percent.
Transport and communication costs, the second-biggest component at 22 percent of the index, climbed 3.4 percent in August from a year earlier. From July, transport and communication prices rose 0.5 percent.
Transport costs are likely to gain further in coming months. Fares for bus journeys will be raised from October, while oil prices above $80 a barrel will increase fuel costs for automobile owners.
Housing, Power
Housing costs, the third-largest component of the consumer price index, climbed 1.1 percent from a year ago, after a 0.7 percent gain in July, today’s report showed. From a month ago, housing prices rose 0.2 percent amid higher rental costs.
Singapore Power, the island’s biggest power company, raised electricity tariffs for the July to September quarter by an average 8.8 percent, citing higher oil prices. It reviews rates every three months.
Recreation costs, which include holiday travel, gained 4.4 percent in August from a year ago and rose 0.3 percent from the previous month. Prices of clothing and footwear gained 0.8 percent from a year earlier and increased 1.5 percent from July.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net