Singapore CPI inflation hits 16-year high

Singapore's October consumer prices rose 3.6% from a year earlier after an increase in the Goods and Services Tax (GST), government data showed on Friday [23 Nov 2007]. It said that inflation averaged 1.6% in the first 10 months of the year and that the figures partly reflected a 2 percentage point rise in the GST to 7% on July 1.

Annual inflation in October rose on higher costs for food, and transport and communication. A sub-index for food, which at 23% has the largest weighting in the overall index, rose 4.3% in October from a year ago, while transport and communication, the second-biggest component in the index, climbed 4.3%.

The need for further policy action to stem price pressures - sooner rather than later - has grown with an unexpected surge in October's inflation rate to 3.6%. The market consensus estimate was 2.8 per cent. 'We thought we had a high inflation forecast for October at 3 per cent,' said HSBC Bank economist Robert Prior-Wandesforde. In fact, the latest rise in the consumer price index (CPI) has leapt well beyond these estimates. Climbing from a 2.7 per cent third-quarter average (itself a sharp jump from the first six months' 0.8 per cent pace), it was driven by rising food and oil prices, and is the highest monthly inflation rate since August 1991.

'I don't think it's a one-off (spike) to be ignored,' said Chetan Ahya, chief economist for South-east Asia and India at Morgan Stanley Asia. 'The risks of more policy reaction have increased with this latest data. One more month with figures like these may mean that the government needs to move quickly.' The urgency will be apparent if crude oil prices touch US$120 a barrel, he added. Most economists believe there will be further monetary tightening via a steeper appreciation of the Singapore dollar at the Monetary Authority of Singapore (MAS)'s next half-yearly policy review in April 2008.

- When I blogged about creeping inflation back in December 2003, it was already clear to me that inflation would be of increasing concern.

Back then, 1 litre of RON95 petrol had been at $1.213 for the longest time I could remember. It went up to $1.263, and I was complaining (then) about the 4.12% increase. And now, I take a look at Petrolwatch and note that the same RON95 grade of petrol is going for $1.956 - which is a 54.87% increase from $1.263 and a 61.25% increase from $1.213.

Back then, I wrote "screw the CPI. Us ordinary folks living in the real world are actually 6-8% behind, at least". Today, I say again, screw the CPI. The M3 data tells me we are closer to 20% behind on a year-to-year basis. Anybody got a 20% pay rise this year? If you did, good for you. I sure as hell didn't.

And, as I have expected, the blame-shifting has already begun. It was the 2% GST increase. It was rising crude oil prices. Rising food prices. But that is putting the cart before the horse. These are symptoms, not causes. The root cause, the one simple reason that all the economists and all the newspapers never tell us about, remains the same. Inflation is a monetary phenomenon caused by an increase in the money supply over and above the increase in available goods and services in the economy.

Comments:

Why has the MAS been doing this? Do they not understand the role of money in inflation or are economic fundamentals so bad that they have to stimulate aggregate demand (aka housing boom) by printing hordes of money and hoping things get better?

Posted by Brock on November 26, 2007 at 01:32 PM SGT #

Seriously. Why do they do this? I think I've asked on this site 3 times now. Why is the government going out of her way to bring hardship to average Singaporeans?

Posted by Brock on November 26, 2007 at 02:38 PM SGT #

As much as I would like to blame the government for the problem via money creation, remember that this works roughly the same way everywhere, with minor variations.

Every central bank in every government in every country everywhere has been inflating away. All the major central banks have been increasing their money over 10% for the past two years.

If you want to pin the blame, it is not entirely *this* government's fault. It is every government's fault. It is the fault of the economic system that we live in.

But, is there a better way? I suspect we will find out - the hard way.

Posted by lowem on November 26, 2007 at 03:29 PM SGT #

But the Singaporeans are much more vulnerable, aren't they? My rather elementary understanding of monetary economics leads me to believe that a "managed" currency combined out of control monetary expansion is a recipe for disaster. Isn't it? The currency doesn't adjust to reflect real market values.

Posted by Brock on November 26, 2007 at 03:50 PM SGT #

Probably in anticipation of a deflation?

Posted by taz on December 01, 2007 at 09:35 PM SGT #