Inflation a big issue to tackle next year

businesstimes.com.sg :

Singaporeans are by now accustomed to reports of rising prices, but that does little to change the fact that inflation is increasingly becoming one of the key issues the country has to tackle in the new year. Christmas Eve brought more news on the inflation front, with consumer prices rising at their fastest pace in 25 years in November due to higher food and transport costs. Last month's consumer price index (CPI) surged 4.2% compared with a year ago. It was also 0.6% higher than the 3.6% recorded in October, which was itself a 16-year high. November's inflation figure has confirmed that October's CPI was not just a one-off spike. Economists are now bracing themselves for even steeper increases in the CPI, and the 5% is seen as within touching distance.

The latest CPI figure has added more urgency to the need for government action to stem price pressures. The government has sketched out how it is likely to tackle rising prices. At the recent People's Action Party (PAP) annual convention, Prime Minister Lee Hsien Loong said that the government is unlikely to impose controls on food or utility prices in response to rising inflation, but will continue to use other ways to help Singaporeans cope with the cost of living. It is now widely expected that the Monetary Authority of Singapore (MAS) will let the Singapore dollar strengthen further, and a stronger local currency can help counter costlier imports. In terms of fiscal policies, the government has announced that it would hold back some projects, to help cool the building sector. But the consensus is growing that the government needs to go beyond monetary and fiscal measures.

One proposal is for the government to restore some of the CPF employer contribution cuts as a way to cool labour demand, which in turn will moderate growth and demand, and help ease inflationary pressures. Other suggestions include more utility bill rebates and lower conservancy charges for the lower-income families to offset higher food costs. Hopefully, as many views as possible will be heard and debated. Cost pressures look set to become a key theme in policy making in the coming few months, and could well define next year's Budget too.

- This just about sums up the tone for next year, 2008. We close 2007 with public acknowledgement of record-setting inflation rates, even in official CPI figures. Let's not forget that Singapore's year-on-year M3 money supply growth has running at or around the 20% level in each and every month in 2007. Official CPI figures hitting 5% or even higher would be quite a phenomenon. M3 figures for that time period could be even more interesting.

Fight the good fight against inflation!

Have a Happy New Year 2008.

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