SINGAPORE: Inflation in Singapore is expected to pick up over the next few quarters before tapering off towards the end of 2014.
This is on the back of rising costs as the country moves to stem the flow of foreign workers.
This is according to the Monetary Authority of Singapore’s (MAS) October Macroeconomic Review.
Labour-intensive sectors like retail and food and beverage have been facing a labour crunch, following the curbs on the inflow of foreign workers and higher levies which are being progressively introduced from July 2013.
Greater reliance on Singaporean workers has pushed resident wage growth to 4.5% in the first half of this year, up from 2.3% in 2012.
Nomura’s Southeast Asia economist, Enrico Tanuwidjaja, said: “The wage spiral that will prop up the domestic prices will definitely remain. For example, the food prices could be elevated.
“One of the reasons is the lag effect. We’ve been keeping the gradual and modest appreciation of the Sing dollar, which means that it has dampened some of the imported food prices, but this will not persist forever.
“The catch-up impact from rising food prices from the food-exporting countries will eventually set in.”
MAS expects domestic food inflation to rise from around 2% in 2013 to nearly 3% in 2014, as cooked food vendors pass on the increases in labour and rental costs to consumers.
Cooked food is estimated to make up 14% of average household expenditure.
Meanwhile, services inflation is expected to rise from 2.7% in 2013 to 3% next year – the first time in almost 20 years that services inflation will stay over 2% for three straight years.
Core inflation, which excludes housing and private transportation costs, is forecast to rise from 1.5% to 2% this year to 2% to 3% in 2014.
According to MAS, domestic labour constraints will likely have a mild net impact on GDP growth. This is because consumer-facing industries account for less than 4% of overall production.
Maybank’s head of forex research, Saktiandi Supaat, said: “(Among the) external risks, obviously, will be the US recovery momentum.
“The G3 – US, Europe and Japan – takes up quite a big chunk of Singapore’s external demand, coming up to about 24% of GDP.
“This is compared to the Asia-6 – China, India, Indonesia, Malaysia, Thailand and the Philippines – which makes up about 14%.
“So anything that happens out of G3 will have a significant impact on Singapore’s export numbers.”
Overall, the MAS expects “modest growth” in the Singapore economy.
GDP is projected to grow at 2.5% and 3.5% this year and is unlikely to be significantly different in 2014.
Singapore inflation to pick up over next few quarters
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