Minister Lim Hng Kiang's oral reply to Parliamentary Questions on CPI

Parliamentary Questions

Mr Ang Wei Neng: To ask the Minister for Trade and Industry (a) if the Ministry is considering taking more measures, other than appreciating the Singapore dollar, to reduce the CPI-All Items inflation rate for the rest of the year; and (b) how does the inflation rate for the past 15 months impact the long-term goal of growing real wages by 30% over the next decade.

Mr Lim Biow Chuan: To ask the Minister for Trade and Industry given the increase in the Consumer Price Index, whether there are any plans by the Government to contain the increasing cost of living in Singapore.

Ms Mary Liew: To ask the Minister for Trade and Industry (a) what is being done to control the current inflation rate; (b) what is the Ministry’s assessment of the inflation rate for the rest of 2012; and (c) what measures will be put in place to assist affected Singaporeans mitigate the higher cost of living.

Oral Answer by Minister for Trade and Industry, Mr Lim Hng Kiang

1.         Singapore’s CPI inflation was 5.2 per cent in March and 4.9 per cent for the first quarter of this year. In the next few months, CPI inflation is expected to remain at around 5 per cent. Barring external shocks, we expect this to ease gradually in the second half of the year to bring full year CPI inflation to between 3.5 and 4.5 per cent. The two largest contributors to CPI inflation are expected to be imputed rentals on owner-occupied accommodation and car prices. Together, they will account for more than half of the inflation this year. As the majority of resident households in Singapore own their homes, they do not actually incur rental expenditure. Likewise, the majority of resident households will not be directly affected by the rise in COE premiums as new car buyers make up a small proportion of all resident households.

2.         Nonetheless, the Government remains committed to keeping inflation in check. Last month, MAS tightened the monetary policy stance further through an appreciation of the Singapore dollar. This keeps imported inflation in check and also moderates the external demand for our exports, thereby reducing demand-led pressures on inflation.

3.         While the appreciation of the exchange rate is a key measure used to curb inflation on the demand side, it is not the only measure that the government has implemented to dampen inflationary pressures. The approach we have adopted is a multi-pronged one, which also includes measures to ameliorate domestic supply-side constraints.

4.         For example, the government has implemented fiscal and macro-prudential measures to cool the property market. Where we can increase supply and moderate supply constraints to relieve cost pressures in the housing, industrial and other property segments, we have also done so directly. Another supply side measure is the government’s effort to work with unions and companies to raise productivity. These include incentives to encourage companies to invest in automation, innovation and capability development, as well as to support the training and upskilling of workers. By enhancing productivity, firms will be able to afford higher wages and cope with the higher business costs, without having to pass on the increased costs to consumers. In addition, the government is also looking at ways to ease the Certificate of Entitlement (COE) supply, to address the concerns of high COE prices.

5.         Although households without cars and staying in their own accommodation may experience a lower rate of inflation than what the headline CPI inflation suggests, the government recognizes that the rate of inflation is still higher than what was experienced historically. The slightly positive note this time is that, unlike the situation in 2008 where food prices rose by nearly 8 per cent due to weather events and a global supply shortage, recent food price inflation has been lower. For example, prices of white rice have been fairly stable at around S$700 per metric ton this year, compared to the peak of S$1,300 per metric ton reached in 2008. In 2011, food prices rose by 3.1 per cent, and in February and March this year, food price inflation remained at below 3.0 per cent.

6.         Nonetheless, the government is committed to help cushion the impact of rising cost of living on households. The government provides cash grants, such as the U-Save rebates which help HDB households to directly offset their utilities bills. Although these grants do not reduce headline CPI inflation, they help to offset the higher cost of living experienced by households.

7.         Further, the Retail Price Watch Group (RPWG), headed by Minister of State for Trade & Industry and National Development Lee Yi Shyan, keeps a close watch on excessive price increases of food and other daily necessities. The RPWG also includes the Competition Commission of Singapore (CCS) and CASE to deal with errant businesses that engage in anti-competitive practices and unfair trading practices. The RPWG has worked with supermarkets, wholesalers, hawkers and food courts to promote the availability of cheaper alternatives and educate consumers on how to shop smartly. Finally, the RPWG’s supermarket members – NTUC FairPrice, Giant and Sheng Siong – held constant the prices of their house-brand products for at least six months last year to help consumers cope with the rising costs of living. 

8.         Mr Ang Wei Neng asked about the impact of inflation on Singapore’s real wage growth over the next decade. This will be addressed by the Ministry of Manpower in its response to a similar question raised by Mr Yee Jenn Jong.