Minister Lim Hng Kiang's oral reply to Parliament Question on Inflation

Question No 603 of Notice Paper No.232 of 2010

Date: For the sitting on 22 November 2010

Name and Constituency of Member of Parliament

Assoc Prof Paulin Tay Straughan, Non-Constituency Member

Question

*603. Assoc Prof Paulin Tay Straughan: To ask the Minister for Trade and Industry whether the rising trend of the Consumer Price Index is cause for concern and if his Ministry has plans to manage inflation in Singapore in the next year.

Answer

Mr Speaker Sir, following the strong recovery in Singapore's economy, headline inflation rose from 0.9% in the first quarter on a year-on-year basis to 3.4% in the third quarter.

The rise in the inflation rate mainly reflects the higher cost of private road transport. Specifically, car prices have risen significantly on account of the reduction in the number of Certificates of Entitlement issued. However, in recent months, we have also started to see more broad-based price increases, such as in accommodation and services.

In the near term, inflation is likely to rise further. Cost pressures are growing, reflecting the high level of economic activity in Singapore. Notably, the cumulative rise in employment has led to some tightening in Singapore's labor market. At the same time, food price inflation is expected to gain momentum over the next few months, given the spate of weather-related supply disruptions in various parts of the world.

In view of these price pressures, the Monetary Authority of Singapore (MAS) tightened its monetary policy in October 2010 by shifting to a slightly steeper appreciation of the monetary policy band without altering the level at which the band is centered. The band was also widened slightly in view of the volatility across international financial markets. This decision followed the tighter policy stance adopted in April this year to pre-emptively address emerging inflationary pressures arising from the sharp economic rebound.

The tighter monetary policy will dampen imported inflation as well as ensure that cost and price pressures do not become entrenched. The continued diversification of our sources of food imports will also help mitigate price fluctuations and keep food prices low. Looking ahead, while CPI inflation will rise to around 4% at the end of 2010, it will moderate to around 2% in the second half of 2011. Singapore’s full year inflation in 2010 is expected to stay within the range of 2.5-3.0%. MAS expects CPI inflation in 2011 at 2-3%.

The government will continue to keep a keen eye on inflation and cost of living to ensure that they remain at manageable levels. For most Singaporeans, the best defense against inflation is good quality jobs that provide good wage growth. The government will continue to provide a favorable environment for business to thrive and for our economy to grow. At the same time, we also need businesses and Singaporean workers to play their part in raising productivity, which will help mitigate the inflationary effects of wage increases in a tightening labor market.