Complete Property Market Updates of Singapore

June 21, 2008

Inflation will ease in second half of year

Filed under: General,Singapore Economy — Propertymarketupdates @ 8:15 pm

SURGING inflation will ease in the second half of the year despite spikes in global food and oil prices, said Trade and Industry Minister Lim Hng Kiang.

He was responding to a question from Non-Constituency MP Sylvia Lim yesterday on the inflation outlook for this year.

Mr Lim said: ‘It is still our central scenario for an easing off of inflation in the second half of the year. Domestically, the impact of the goods and services tax (GST) rise will ease off in July, while externally, the run-up on food prices is expected to ease in the second half.’

The Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore revised their full-year inflation forecast last week to between 5 and 6 per cent – up from an earlier estimate of between 4.5 and 5.5 per cent – citing dearer food and oil. Inflation last month hit a 26-year high of 7.5 per cent.

But the revised forecast remained consistent with the earlier expectations of a second-half cooling off, the MTI said.

While Mr Lim admitted that it was impossible to insulate Singapore from higher global prices, he said that the Republic’s exchange-rate-centred monetary policy, which has been in place since 1981, remained effective in staving off the full impact of global inflation.

He said that domestic inflation had been low over the sustained period between 1981 and last year, averaging 1.7 per cent. By contrast, inflation averaged 5.5 per cent for the Organisation for Economic Cooperation and Development (OECD), a 30-strong group of the world’s richest countries.

The exchange-rate policy of maintaining a strong Singapore dollar also helped to reduce the cost of imports, Mr Lim said. ‘For example, between January last year and March this year, global food prices – measured by the International Monetary Fund’s food price index – surged 50 per cent, whereas the domestic cost of food imports rose by a much lower 14 per cent.’

Opposition MP Low Thia Khiang (Hougang) raised the possibility of cutting taxes, such as the GST and the petrol tax, to help Singaporeans cope with rising prices.

But Mr Lim said that a multi-pronged solution was more desirable: ‘It is not useful to tweak the GST rate in response to short-term phenomena and we have adopted an approach aimed at the medium term.’

This approach, announced in February, includes the diversification of food sources to minimise spikes in prices due to supply disruptions.

At the same time, the Government is providing direct assistance to Singaporeans, especially those in the lower- and middle-income groups, who are affected by the higher cost of living, said Mr Lim.

Source : Straits Times – 27 May 2008


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