Saturday, July 24, 2010

Inflation rises slowest for low earners

RISING prices, in the wake of Singapore's strong economic rebound, affected households across all income groups in the first six months of this year, according to figures released yesterday.

But cost increases were slowest for the lowest earners - those in the bottom 20 per cent by household income.

This is a departure from recent years when rising prices hit low-income households hardest. Figures from the Statistics Department show that the consumer price index (CPI) for them rose by 1.6 per cent over the same period a year ago.

By contrast, the rise was 2.1 per cent for the highest-earning households - the top 20 per cent of households.

The CPI increase for the 60 per cent of households in between these two segments was 1.9 per cent. The overall CPI for all households was 2.0 per cent in the first six months of the year.

A widely used index for inflation, the CPI assesses changes in the prices of a basket of goods and services - such as food, housing and transport - commonly bought by most households.

The Department of Statistics, which released the figures, said the CPI increase for the lowest 20 per cent income group was mainly due to higher electricity tariffs, service and conservancy charges and food prices among other things.

'The highest 20 per cent income group experienced a higher inflation rate compared with other income groups... on account of their relatively larger weights for cars and petrol, which registered significant price increases during this period,' it added.

A cut in certificate of entitlements this year has sent their prices up.

West Coast GRC MP Ho Geok Choo said one reason inflation was moderated for poorer families was due to the efforts of cooperatives like NTUC FairPrice in keeping prices relatively stable.

Such families spend a larger proportion of their income on basics like food.

But economist Tan Khee Giap of the Lee Kuan Yew School of Public Policy said there could be a return to the trend of the poorest being hit hardest if their wages do not surpass inflation as the economy picks up. 'One should not read too much into these figures yet,' he said.

Holland-Bukit Timah GRC MP Liang Eng Hwa, like Madam Ho, noted that as costs of other goods and services rise, the lower-income may feel the pinch.

For example, utility prices have risen, he noted.

In January, electricity prices rose 5.4 per cent to 22.87 cents per kilowatt hour (kwh), fuelled by rising oil prices. This worked out to a hike of $4.70 a month for a four-room flat.

Electricity prices went up further to 23.56 cents per kwh in April, and now stand at 24.13 cents per kwh.

Said Mr Liang: 'While inflation is not really a concern yet, it is something the Government must watch closely.'

In a separate statement, the Statistics Department said inflation for last month climbed less than expected.

Prices rose 2.7 per cent compared to the same month last year, below economists' forecast of a 3.5 per cent jump.

Almost all goods and services categories saw price inflation for the year to June, led by rising transport costs.

But when compared to May this year, the June prices dipped by 1 per cent.

This was due to lower car prices compared to May and petrol prices, service and conservancy charge rebates, and cheaper clothes and shoes during the Great Singapore Sale.

Still, economists expect inflation to pick up in the coming months, although Citigroup's Kit Wei Zheng believes the pace will moderate as economic growth eases in the second half of the year.

Most economists also believe the Monetary Authority of Singapore will continue its policy of a gradual appreciation of the Singapore dollar at its next review, rather than tighten policy to further counter inflation.

Source: Straits Times, 24 Jul 2010

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