Impact of Recent Price Increases on Cost of Living

Mr Zaqy Mohamad asked the Minister for Trade and Industry (Industry) (a) whether the Ministry is tracking the recent slew of price increase announcements such as water, electricity, transport and carpark charges, and its impact on the cost of living within a short period; (b) what is the expected impact on the Consumer Price Index in the next three years; and (c) what proportion is due to Government-influenced price increases.

The Senior Minister of State for Trade and Industry (Dr Koh Poh Koon) (for the Minister for Trade and Industry (Industry)): Mdm Speaker, both MTI and MAS closely monitor external and domestic price developments, including movements in global oil prices and administrative price adjustments, as well as their impact on inflation in Singapore. For 2017, MTI and MAS have projected that CPI-All Items inflation will pick up to 0.5% to 1.5%, from -0.5% in 2016.

The main driver of the pickup in inflation in 2017 is the expected increase in the prices of electricity and other energy-related components, such as petrol, on the back of a projected rise in global oil prices. In particular, following a sustained period of decline, global oil prices started to pick up in the second quarter of 2016 and are expected to average higher in 2017. In line with this, the electricity tariff − which is pegged to prevailing gas prices that are in turn indexed to the global oil prices − reversed its downward trend to post an increase in the third quarter of 2016 and is generally expected to be higher in the coming quarters as compared to last year.

However, notwithstanding the increase, it should be noted that the current tariff remains around 17% lower than the peak that was reached in the second quarter of 2014. Beyond 2017, the extent to which electricity tariff and other energy-related components will contribute to inflation in 2018 and 2019 will depend on the movement in global oil prices then.

At the same time, administrative price adjustments, including the increases in water tariff and carpark charges, will also contribute to a temporary increase in inflation, although I must say the impact is expected to be small. MTI estimates that the various administrative price adjustments will collectively contribute around 0.2 percentage-point to inflation in 2017.

Going forward, the Government will continue to closely monitor the impact of administrative price adjustments and other price developments in the economy on households.

Mr Zaqy Mohamad (Chua Chu Kang): I thank the Senior Minister of State for the clarification. Many of my residents are concerned because there have been a slew of Government announcements of price increases ranging from carpark to water, and recently, on energy as well.

How can the Government help assure citizens that the impact of such Government-influenced prices will not impact long-term sustainability in terms of affordability and cost of living?

I just want to check that for the 0.2%, is that after or before the Government transfers to help subsidise short-term increases, because there is a long-term implication as well, if we keep doing that.

Second, I would like to check: does the Ministry pro-actively monitor this and coordinate with agencies so that we can also smoothen − in anticipation of some of these potential increases that we know of; for example, the energy prices the Senior Minister of State mentioned − could we have smoothened some of these increases as well to make it more affordable for citizens?

Dr Koh Poh Koon: Mdm Speaker, I would like to reassure the Member that the Government does take this seriously and is monitoring. We will as far as possible smooth out some of these increases, wherever possible. The difficulty, of course, is that oil prices and gas prices are not really within our control and we have to adjust as and when these prices start to fluctuate globally.

On the question about whether the 0.2 percentage-point increase includes some of the rebates and Government subsidies, the answer is: no. Let me just explain this − there are a few ways we can help to offset some of these. One, of course, is to stagger the price increases, and as Members would remember, the water tariffs are increased over two tranches: the first tranche will be in July this year, and the next increment will be in July next year. It is broken up into two phases to offset the steepness of the increase.

The U-Save rebates are not taken into account in the CPI calculations, as these are actually given to households as a lump sum to be utilised over a few months. The rebates are treated as some form of income transfer. They do not directly reduce the price of the individual product per se, such as the water tariff, for example. And therefore, they do not get calculated as part of the CPI adjustments. Therefore, I think when you look at the top-line adjustments for CPI, bear in mind that hidden behind it, there are also some form of U-Save rebates, for example, that are not captured in the adjustment. So, for households that receive rebates, the impact for them will be much less than what is reported.

Mr Leon Perera (Non-Constituency Member): Just a few supplementary questions for the Senior Minister of State.

Can I clarify the expected inflation rates of 0.5% to 1.5% that he indicated? Is that overall inflation or core inflation? And if it is overall, could he share the outlook for core inflation?

Next, on the analysis for the causes of the inflation and the contribution of the governmental administrative charges, will that be the same for overall inflation, as opposed to core inflation, and as such, playing a greater role for core inflation? Thank you.

Dr Koh Poh Koon: Mdm Speaker, the numbers that I gave earlier on the increase of 0.5% to 1.5% is actually CPI-All Items inflation. I do not have the numbers for core inflation that the Member is asking for.