Singapore June CPI estimated at a new 26-year high due to strong oil prices

July 22, 2008
Singapore Democrats

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Pearl Bantillo
Thomson Financial News

‘We do not expect inflation to fall sharply,’ said DBS Bank economist Irvin Seah. ‘It is more likely to exhibit a downward crawl, especially with new sources of inflationary pressure, mainly policy-induced, coming into the picture.’

Soaring oil prices likely pushed Singapore’s inflation to a fresh 26-year high in June, when the rise in consumer prices may have hit its peak, before it decelerates in the second half of the year as the effect of the goods and services tax hike wears off, economists said on Monday.

Consumer prices rose an average 8.0 percent last month from a year ago, based on Thomson IFR’s poll of economists. The estimated June figure is faster than the 7.5 percent rise recorded in May.

Seasonally-adjusted, inflation may have slowed to 0.1 percent from May, compared with the 0.3-percent increase in May from April, economists said.

The Department of Statistics will release the data on Wednesday, July 23.

Oil prices continued to shoot up, crossing $140 a barrel during the month. The decision of neighbouring Malaysia to hike fuel prices by 40 percent in early June may have further pushed the cost of imported food for the city-state, said Selena Ling, economist at Oversea-Chinese Banking Corp.

The pass-through effect may be strong given that Singapore imports about 70 percent of its food requirements from Malaysia, and that food has a 23 percent weighting in the city-state’s consumer price index basket, said United Overseas Bank economist Ng Shing Yi.

‘Prices in the transport segment should edge up as private bus operators hiked their transport fares due to fuel costs. However, rebates in service and conservancy charges delivered in June should help to curb prices in the housing segment,’ said Ng in a note.

Economists expect the inflation numbers to ease from July onwards after taking out the impact of the two-percentage-point GST hike, which caused the spike in consumer prices in the second half of 2007.

‘We do not expect inflation to fall sharply,’ said DBS Bank economist Irvin Seah. ‘It is more likely to exhibit a downward crawl, especially with new sources of inflationary pressure, mainly policy-induced, coming into the picture.’

Seah said the setting up of new electronic road pricing (ERP), the hike in ERP charges and a new taxi fuel surcharge starting July will likely keep inflation high in the coming months, with the full-year average exceeding the government’s 5.0 percent to 6.0 percent forecast range.

($1 = S$1.46)

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