Inflation hits poorest 20% twice as hard

Source: Straits Times, 25 Aug 2009

This group was affected most by food and housing prices in first six months

By Joyce Teo

SINGAPORE’s poorest 20 per cent were hit twice as hard by inflation than better off households during the first half of the year, new Government figures show.

Largely because of rising food and housing prices, the low-income group experienced inflation at 1.6 per cent in the six months to June, compared to 0.7 per cent for the middle 60 per cent and 0.9 per cent for the top 20 per cent of households.

But these price rises are well down on the levels seen just a year ago.

Overall, the average household saw a 0.8 per cent inflation rate in the first half of the year, compared with the whopping 7.1 per cent in the same period last year, said the Department of Statistics yesterday.

The steeper rise for the lower paid is largely down to their being disproportionately impacted by higher prices for basic commodities such as housing and food.

July’s consumer price index (CPI) – the main measure of inflation – was down 0.5 per cent on the same month a year ago due to lower transport, housing and recreation costs.

Comparing July 2009 with July 2008, housing costs dropped 1.3 per cent – largely down to cheaper electricity – while transport and communications costs fell by 3 per cent, mainly because of petrol price falls. With lower holiday travel costs, recreation too dipped by 0.9 per cent.

Economists are expecting these mild year-on-year price falls to turn positive soon.

‘Although prices are still dropping year-on-year, the rates of decline are starting to slow,’ said Mr Song Seng Wun, an economist from CIMB-GK which is expecting mild deflation for the remainder of this year.

After stripping out the ‘seasonal’ effects, the CPI was up 0.3 per cent in July over June, after rising 0.2 per cent in June and 0.8 per cent in May.

This was largely due to a 1.4 per cent hike in housing costs because of higher electricity tariffs, plus service and conservancy charges. Rebates were given in June, but not July.

Also, food prices dipped 0.1 per cent in July over June, while transport and communications costs rose 0.7 per cent, according to CIMB-GK.

Mr Alvin Liew, an economist from Standard Chartered Bank, Singapore, said the data suggested that there may be price pressure building up even as the year-on-year figures could still be negative for a few more months.

‘Price increases now look to be rising faster than expected,’ said UOB Economic Research economist Chow Penn Nee.

‘The CPI will probably register monthly increases throughout the year, with economic indicators gradually improving, and crude oil price and accommodation costs also rising in tandem.’

The Monetary Authority of Singapore (MAS) is predicting full-year inflation will come in at between minus 0.5 per cent and 0.5 per cent.

Looking forward, it is the lower income groups who will be the ones most at risk from higher food prices, said CIMB-GK’s Mr Song.

Current higher crude oil prices and potential food supply disruptions because of El Nino may jack up utility and food costs from the fourth quarter, he warned.

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