Singapore CPI inflation rate at 6.5% in Feb 2008, holds near 25-year record

bloomberg.com, businesstimes.com.sg, channelnewsasia.com :

Singapore's inflation in February [2008] held near the highest since 1982. The consumer price index [CPI] jumped 6.5% from a year earlier, after gaining 6.6% in January, the Department of Statistics said today [24 Mar 2008]. This prompted the Ministry of Trade and Industry to issue a second statement in two months saying that underlying inflation remains stable.

The Monetary Authority of Singapore expects inflation this year to gain at more than double 2007's pace. Singapore's central bank expects inflation to average between 4.5-5.5% in 2008, after gaining 2.1% last year. The central bank, which has sought a "gradual and modest" strengthening in the currency since April 2004, said in October it would allow a "slightly" faster appreciation in the Singapore dollar. The Singapore dollar has gained 3.4% this year.

Food prices, which make up 23% of the index, rose 6.7% in February from a year ago, following January's 5.8% increase. Rising prices of daily food essentials have prompted the government to roll out a campaign which included newspaper and television advertisements to encourage consumers to switch to cheaper frozen meats from fresh ones. Transport and communication costs, the second-biggest component at 22% of the consumer price index, climbed 7.6% in February from a year earlier. Oil prices breached $110 a barrel this month, increasing fuel and transport costs for consumers. The Singapore government doesn't subsidize pump prices, leading petrol companies to pass on the rising gasoline and diesel costs to car owners. Housing costs, the third-largest component of the price index, climbed 8.8% from a year ago. The increase came as the government raised property valuations for public housing at the beginning of the year.

- So, it looks like Singapore's 25-year record-high inflation remains with us still. Read the last paragraph above again and note how food inflation has accelerated. Okay, read the whole paragraph in its entirety again, and notice how, out of the supposedly three largest components of the CPI, food has gone up 6.7%, transport has gone up 7.6%, and housing has gone up 8.8%, and yet the overall CPI figure is stated as going up only 6.5%? Something funny is going on here. You know what Mark Twain said about statistics? "There are three kinds of lies: lies, damned lies and statistics." The news outlets can quote the official CPI figures all they want. I'm not exactly buying it.

I prefer to use the Austrian definition of inflation - the rate of growth of the money supply versus the rate of growth of available goods and services in the economy. The Keynesian folks will howl at this one but here goes : my proxies for money supply and economic growth are the M3 and GDP growth rates, hence the M3-to-GDP differential is my preferred indicator for the real inflation rate. The Singapore M3 money supply growth rate averaged about 20.6% in 2007 and the Singapore GDP growth rate was 7.5% in 2007, hence M3 - GDP = 13.1%. This feels a lot more "real" as an inflation figure, given that the prices of things have been going up at 20-30%, especially towards the latter part of 2007 when inflation started to really take off.

Finally, there is one more thing that rings alarm bells for me. Some of the contrarian investors amongst my audience may notice that the part about "underlying inflation being stable" sounds quite a bit like what the Americans have been saying about their "core inflation rate being stable". More Mark Twain for you.

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