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February inflation at four-year low, but may pick up pace

SINGAPORE — Consumer prices rose at the slowest pace in four years last month, official data showed yesterday, but inflation may pick up pace in the coming months, economists warned, as persistently high labour and business costs are passed on to consumers on items such as healthcare, education and cooked food.

SINGAPORE — Consumer prices rose at the slowest pace in four years last month, official data showed yesterday, but inflation may pick up pace in the coming months, economists warned, as persistently high labour and business costs are passed on to consumers on items such as healthcare, education and cooked food.

The consumer price index (CPI) for last month rose 0.4 per cent following January’s 1.4 per cent increase, the Monetary Authority of Singapore and the Ministry of Trade and Industry said in a joint statement, the lowest since January 2010 and below the economists’ consensus estimate of a 0.8 per cent rise. This was largely due to the high base from the same month last year when the Chinese New Year had pushed up food costs, while car prices were lifted by record premiums for Certificates of Entitlement (COEs).

Private road transport costs fell 7.1 per cent last month after January’s 3.5 per cent drop. “This is coming down from a peak in January last year, when COEs for small cars were the highest since at least 2002. But the premiums had been on a decline since March last year due to government measures such as curbs on auto loans,” said UOB economist Francis Tan. “Similarly, due to measures to cool the housing market and greater housing supply this year and the next, the appreciation in accommodation costs has been slowing,” he added.

The rise in accommodation costs slowed to 2 per cent last month from 2.4 per cent in the previous month. Accommodation and private road transport prices account for about 31 per cent of the CPI basket. Food prices occupy another 22 per cent, and in February, food inflation was 2.3 per cent, down from 3 per cent a month earlier.

“This was due to the correction in non-cooked food prices after the Chinese New Year (in January this year), as well as the high base last year when Chinese New Year was in February,” said CIMB economist Song Seng Wun.

The latest CPI reading marks the fourth straight month of slower inflation since it rose to 2.6 per cent last November. But the easing of core inflation — which excludes accommodation and private road transport costs — was less pronounced, even as it slowed to 1.6 per cent last month from 2.2 per cent previously.

And with businesses here facing high labour costs, consumer prices are set to “normalise down the road”, said Credit Suisse analyst Michael Wan.

“With the labour market still structurally tight, we expect wage growth to continue trending higher over the next two years, which will likely add to the core inflation,” he said. “We can expect core inflation to rise from the current rates to around 3 per cent by the end of the year.” As a result, “healthcare costs will continue to rise. In fact, they have been rising since a low in November last year to 4 per cent last month. Other potential areas include education and cooked food,” said Mr Tan.

“Fortunately, the government’s focus on supporting senior citizens in this year’s Budget will help alleviate some of the pressure,” he added.

On a month-on-month basis, the CPI fell 0.1 per cent from January, as costs fell after the Chinese New Year.

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