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Singapore’s annual inflation rate stayed at 7.5 percent in May, boosted by rising food, transport and housing costs, the government said on Monday.

The monthly consumer price index (CPI) was the same as the 7.5 percent recorded for April - which was a 26-year high - but lower than the 7.7 percent forecast by economists polled by Dow Jones Newswires.

Food prices rose by 9.0 percent year-on-year in May, more than the 8.5 percent in April, while housing costs jumped by 12.4 percent, against April’s 11.8 percent, data from the statistics department showed.

Transport and communications costs rose by 6.0 percent last month, slower than the 7.0 percent rise for April, figures showed.

From April to May, the CPI rose by 0.2 percent, the statistics department said.

In the first five months of the year, the CPI was 7.0 percent higher compared with the same period last year, it said.

Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its bigger neighbours.

The trade ministry is forecasting inflation of five to six percent for the year.

Governments around the region are grappling with rising prices, particularly as the global cost of oil hovers near record levels. - AFP/ac

Source : Channel NewsAsia - 23 Jun 2008

Central banks forced to change direction to combat it: Moody’s

Soaring inflation and the response it triggers from central banks is a greater threat to economic growth in Asia than the downturn in the US, a senior spokesman for ratings agency Moody’s said yesterday.

Asian central banks that were previously easing monetary policy to help cushion their domestic economies from the impact of slowing growth in the US, Europe and Japan have now been forced to change direction because of a rapid increase in food and energy prices, said Thomas Byrne, a senior vice-president and regional credit officer for Moody’s sovereign risk unit in Asia and the Middle East.

‘Inflation has become our foremost concern,’ he said at a news briefing to present the Moody’s outlook for South-east Asian banks and governments. ‘The policy response to inflation - tightening by central banks or reluctance to ease because of the inflationary pressure - this will probably have a greater effect on economic growth in Asia than the sub-prime and credit market crisis.’

Policy-makers who target only ‘core’ inflation - which exclude changes in food and energy prices on the premise that their volatility distorts the overall price measure - could risk acting too late to stem rising prices because higher food and energy prices do spill over to other goods and services, Mr Byrne said.

‘When we look at inflation we tend to look at headline inflation,’ he said.

The US economic slowdown and the turmoil in financial markets that started in the sub-prime mortgage market there will have a ‘fairly moderate’ effect on Asian trade, he said. ‘So the trade channel won’t transmit this drag very strongly into the Asian economic outlook.’

Instead, ‘what’s happening is that central banks aren’t easing when they previously wanted to ease and some of them are actually starting to tighten or are tightening more vigorously’ because soaring food and energy prices are driving up business and household costs.

This will have a greater effect on dampening economies in Asia than slowing exports due to weaker growth in the US, Mr Byrne said.

‘Also, high inflation means that in real terms purchasing power is eroded, so the ability of household consumption to support growth is somewhat diminished.’

Still, ‘globally, we don’t expect this inflationary episode to be as severe as the ones in the 1980s or 1970s’, he added.

And Asia as a whole ‘won’t have as high inflation as other regions - say, the former Soviet Union countries or the Middle East’.

Moody’s credit ratings and ratings outlooks on most Asian governments are still stable, ‘but the risks are on the downside’, Mr Byrne said.

The firm expects the US will suffer slower growth this year but escape a recession. Moody’s is forecasting real gross domestic product growth of 1.5 per cent in the US in 2008 and 2.5 per cent next year - well ahead of the International Monetary Fund’s forecasts of 0.5 per cent and 0.6 per cent respectively.

But ‘a lot of this depends on oil prices and the Fed’s response - whether it starts to tighten later this year or not’, said Mr Byrne.

Source : Business Times - 20 Jun 2008

Forecasters in the latest poll by Singapore’s central bank have adjusted their second-quarter growth forecasts for the economy to an average of 4.7 per cent, up from their earlier projection of 4.4 per cent.

But the outlook is less cheery for the full year as the economy crosses the halfway mark of 2008, according to the June survey of economists and analysts by the Monetary Authority of Singapore.

The 21 forecasters polled have further trimmed their full-year 2008 GDP growth projection to an average 5.5 - a downgrade from the 6.3 per cent projection in December last year and 5.6 per cent in March this year.

And the downgrade came despite GDP growth of 6.7 per cent in the first three months of this year - higher than the forecasters’ 5.7 per cent number.

The Ministry of Trade and Industry is maintaining the official full-year growth forecast of 4-6 per cent for the economy.

In the eyes of the forecasters, things are also not looking better down the road on the employment and inflation fronts. They have adjusted their outlook for the consumer price index increase to 6 per cent this year, up a percentage point from the March forecast.

‘More than half of the respondents’ projections fell within the 6.0-6.5 per cent range,’ MAS says.

MTI last month raised its projection for 2008 consumer price inflation by half a point to 5-6 per cent, following a spike in the rate to 7.5 per cent in April - a 26-year high.

As for employment, the June survey shows forecasters tipping a jobless rate of 2.2 per cent for 2008, up slightly from the 2 per cent they projected in March.

Figures released yesterday by the Ministry of Manpower indicate that the unemployment rate rose from a seasonally adjusted 1.7 per cent in December 2007 to 2 per cent in March - and the outlook ahead is uncertain.

Except for manufacturing, the forecasters trimmed their 2008 GDP growth projections for all economic sectors in the latest poll. The deepest cut was for construction - they slashed their growth forecast for the sector from 15.9 per cent to 11.7 per cent.

The growth forecast for financial services was trimmed from 9.5 to 9 per cent, wholesale & retail trade from 6.3 to 5.2 per cent and hotels and restaurants from 5 to 4 per cent.

The manufacturing sector is now tipped to grow 5.5 per cent this year, instead of 5 per cent as thought earlier.

The forecasters also cut their growth forecast for private consumption this year, from 4 to 3.9 per cent. Non-oil domestic exports are expected to expand even slower - at 3 per cent, against the March forecast of 5 per cent.

Source : Business Times - 17 Jun 2008

Latest MAS poll also finds that projections for most sectors have eased slightly

THE economic outlook for the year is looking a bit like a ride on a roller coaster - a lot of ups and downs with the view changing all the time.

This is partly reflected in a new Monetary Authority of Singapore (MAS) poll, which has tipped the economy to move along at a reduced pace compared with last year but pick up towards Christmas.

The optimism is due partly to the belief that the spillover from the boom in India and China will offset a slowdown in the United States and partly to a view that inflation will be easing.

Dr Chua Hak Bin, chief Asian strategist at Deutsche Bank Private Wealth Management, said a visible slowdown in the second and third quarters seems to be on the cards, with an improvement by the end of the year.

‘I am forecasting about 5.1 per cent growth for the second quarter, 4.8 per cent for the third and 5.6 per cent in the fourth.

‘The latest survey suggests that Singapore’s economy remains resilient despite a US downturn. Strong growth in emerging economies like China and India is partly compensating for slower growth in the US.’

United Overseas Bank economist Ng Shing Yi said inflation should have peaked last month or this month, and is likely to moderate in the second half due to stabilising oil prices.

MAS polled 21 economists and analysts for its June survey released yesterday. The key finding was that economic growth for the year has been forecast to come in at 5.5 per cent, down a touch from the 5.6 per cent forecast in the March survey.

The experts expect lower- than-expected growth in construction, financial services and wholesale and retail trade to hinder expansion.

In particular, expectations for the construction sector were dialled down from March’s projection of 15.9 per cent to 11.7 per cent, while wholesale and retail trade is forecast to slow to 5.2 per cent from 6.3 per cent.

But while inflation risks continue to escalate, the experts said strong growth in China and India will help cushion the impact of a flagging US economy.

The amended forecast of 5.5 per cent is within the 4 to 6 per cent range of growth that the Government predicted earlier.

The MAS said the most likely outcome is for growth of between 5 per cent and 5.9 per cent this year, based on mean probability distribution of the survey.

What yesterday’s figures also reveal is how difficult it is to get a handle on things in this year of sub-prime crisis, credit crunch, oil shocks and periods of near financial market panic.

This is evident in the first-quarter growth number. The experts had tipped in March that it would be 5.7 per cent but the MAS said yesterday the economy actually expanded by 6.7 per cent in the period.

That healthy number prompted analysts in the June poll to adjust their forecast for second- quarter growth to 4.7 per cent, up from 4.4 per cent in the March survey.

HSBC Bank economist Robert Prior-Wandesforde said the upward revision in second-quarter forecasts reflects the unexpected strength of first-quarter data.

He believed that there remained potential upside surprises for both growth and inflation; he tips 6 per cent annual growth and at least 6.3 per cent inflation.

‘If I’m right, then the pressure will remain on the MAS to keep a tight currency stance at its October meeting,’ he said.

Inflation is a key concern. The MAS said the median forecast rose to 6 per cent from 5 per cent in March. Inflation in the second quarter is tipped at 7.5 per cent.

Source : Straits Times - 17 Jun 2008

6.6% inflation cuts into average rise of close to 11%

WAGES here have risen by close to 11 per cent, the highest in almost a decade.

But the impact of soaring food and fuel prices meant that for employees in manufacturing, transport and administrative jobs, their real wages - pay minus the effect of inflation - actually fell.

The Manpower Ministry’s labour market report for the first quarter, released yesterday, is the first set of official figures to show the impact of inflation, at a 26-year high of 6.6 per cent, on the wage increases that workers across different sectors received.

And with annual inflation forecast at 6 per cent this year, analysts were not entirely optimistic.

National University of Singapore labour economist Park Cheolsung said it is a matter of time before real earnings dip for those in other sectors.

The report noted that on average, real earnings grew by 3.6 per cent compared to the same three-month period last year.

Workers made $4,316 a month on average this quarter. But after adjusting for inflation, they effectively earned $3,982.

This monthly figure is derived from an average of all full-time and part-time CPF members.

Rising global prices of food and fuel saw the consumer price index rise by 6.6 per cent in the first three months of this year.

The Government rolled out help schemes for the needy and the strong Singapore dollar is helping maintain purchasing power. The National Wages Council also asked firms to give one-off bonuses to help rank-and-file workers cope with inflation.

Still, Prime Minister Lee Hsien Loong has said the best way to manage rising prices is to grow the economy so real incomes outpace inflation.

But for now, salary consultant Peter Lee is not optimistic real earnings can do so. ‘Nobody can control inflation, and most employers cannot adjust wages to fight it,’ said the managing consultant of RDS Remuneration Data Specialists.

His firm’s recent survey of 200 companies showed pay packets were likely to rise by 5 per cent - lower than what prices have risen already by, and below the 6 per cent inflation forecast this year.

But for now, the economy is growing, with jobs aplenty.

The ministry’s report showed a record 73,200 new jobs from January to March. This includes 46,500 in services, 14,500 in construction and 11,800 in manufacturing.

But unemployment crept up to 2 per cent in March, from 1.7 per cent in December. Among residents, the rate was 2.9 per cent, up from 2.4 per cent.

As for vacancies, there were 38,200 openings in March with more jobs for professionals, managers, executives, technicians, clerical, sales and service staff.

Analysts like Dr Park believe unemployment may rise and job growth could slow - a point backed by a Monetary Authority of Singapore survey of economists, who see growth slowing to 4.7 per cent this quarter.

Source : Straits Times - 17 Jun 2008