Govt doing its best to keep inflation low, assures minister

Nazry Bahrawi
nazry@mediacorp.com.sg

WITH groceries costing more by the day and consumers still getting used to
the four-month-old 2-per- cent hike in GST, it was inevitable that
inflation – and the Government’s handling of it – became one of the
talking points in Parliament yesterday.

Among the questions raised by several MPs: Is the Government monitoring
the increases in prices of food items such as flour and chicken? Are such
increases a cause of concern? What will be the impact of rising prices on
businesses? Should the Singapore dollar be allowed to appreciate further?

Madam Halimah Yaacob (Jurong GRC), wondered whether the Consumer Price
Index (CPI ) – which rose 2.7 per cent year-on-year in the third quarter
compared to 1 per cent in the second quarter and 0.5 per cent in the first
quarter – was an accurate reflection of inflationary trends in Singapore.
The CPI tracks the prices of a basket of goods and services, such as
housing, healthcare and transport, consumed by an average household.

Mr Inderjit Singh (Ang Mo Kio GRC) said he was concerned that higher
inflation would affect Singapore’s competitiveness in attracting foreign
investors. Non-Constituency MP Sylvia Lim of the opposition Workers’
Party, wanted to know how Singapore is diversifying its food sources in
order to stabilise prices.

In his response, Trade and Industry Minister Lim Hng Kiang said that the
Government would try its best to keep inflation low even as he noted that
the “current uptick in inflation is a global phenomenon”.

For example, Mr Lim said, the Monetary Authority of Singapore (MAS) had
managed to strengthen the value of the Singapore dollar by maintaining an
exchange rate policy since April last year that allows the currency to
“appreciate gradually and modestly” rather than pegging it to the US
dollar. The latter move would have resulted in Singaporeans experiencing
higher inflation.

In reference to Mdm Halimah’s query about whether the CPI was an accurate
reflection of the state of inflation here, Mr Lim noted that the index had
been low for the first two quarters of this year. The CPI is expected to
rise slightly above 2.7 per cent in the fourth quarter.

Mr Lim attributed the lower CPI in the first two quarters of the year to
the “low transport CPI” because of some changes to the transport policies
as well as the low oil prices back then.

However, oil prices are now on the rise and the impact of the GST hike in
July will continue “to show up in higher CPI inflation figures” for 12
months until June next year.

Mr Lim added: “Unlike food import prices, the GST increase has had only a
limited impact on basic food prices as the major supermarket chains have
been absorbing the GST increase for basic food items.”

Mr Lim expects the CPI to hover around 3 per cent in the later part of
2008, higher than the last few years. The Government expects inflation to
peak at 4 to 5 per cent in the first half of next year.

On the issue of food diversification, Mr Lim said while Singapore can
explore the possibility of importing vegetables from Thailand and China,
there is only so much that the Government can do to mitigate a price hike
in consumer goods.

For example, if there is a worldwide increase in the prices of cornfeed,
than chicken prices will go up even if Singapore were to diversify its
sources of frozen chicken from countries such as Australia, the United
States and Brazil.

Allaying Mr Singh’s concern over the impact of rising prices on
businesses, Mr Lim said that Singapore is still in a “good position” to
attract foreign investments because inflation here is still comparatively
lower than other countries.

Singapore is competitive also because while wages had increased, so too
had our productivity, said Mr Lim.

“I don’t think we should begrudge our workers having a fair share of wage
increase in the last two years if we look at the last broader 5 to 7 year
time frame,” he said, explaining that wages was slow to climb during the
longer term period.