Managing Inflation in Singapore

Mr Ang Wei Neng asked 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 asked 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 asked 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.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Sir, can I have your permission to take Question Nos 1 to 3 together, please?

Mr Speaker: Yes, please.

Mr Lim Hng Kiang: Mr Speaker, Sir, Singapore's CPI inflation was 5.2% in March and 4.9% for the first quarter of this year. In the next few months, CPI inflation is expected to remain at around 5%. 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%. 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.

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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.

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.

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 upgrading 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 customers. 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.

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 recognises 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% 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 $700 per metric tonne this year, compared to the peak of $1,300 per metric tonne reached in 2008. In 2011, food prices rose by 3.1%. In February and March this year, food price inflation remained at below 3%.

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 Singaporeans.

Further, the Retail Price Watch Group (RPWG) keeps a close watch on excessive price increases of daily necessities. The RPWG also includes the Competition Commission of Singapore (CCS) and CASE to deal with 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. For example, 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.

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 in Question No 8.

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Mr Ang Wei Neng (Jurong): Mr Speaker, I thank the Minister for the thoughtful and comprehensive reply. I have a couple of supplementary questions. As reported in The Straits Times in April, there were three years since the 1980s whereby inflation exceeded 4%: in 1980, 1981 and 2008. High inflation in these years was mainly driven by imported inflation as oil and food prices increased rapidly. What proportion of the March 5.2% inflation rate was due to imported inflation? Would MTI consider publishing the proportion of the inflation rate that is due to imported inflation on a regular basis? Sir, the second part of my question is related to the real wage increase which I would probably ask the Minister for Manpower later.

Mr Lim Hng Kiang: Mr Speaker, Sir, as I mentioned in my reply, the main components of inflation this time round are imputed rentals caused by property prices and the prices in rent, as well as the COE prices. Food prices average about 3%. So, if we looked at the overall situation, this time round, it is different. It is a result of global liquidity: because of the problems in the developed countries, there is a lot of very loose monetary policy in the developed countries, resulting in global liquidity and in asset prices, particular in our case, property prices going up. This translated into rents. We also have the COE which is an internal policy. In response to the growing congestion on our roads, we have curtailed the number of COEs, but this is something that the Ministry of Transport is looking at. So, overall, the situation is different from previous years. There is some element of oil prices impacting us and, of course, food prices have some impact but it is relatively lower at 3%.

Ms Mary Liew (Nominated Member): Mr Speaker, Sir, I would like to thank the Minister for his very comprehensive response, and also the measures that have been put up to assure our workers. I would like to ask whether there would be any specific initiative to help our lower income groups in the event where high inflation continues to persist. Would there be a one-off measure as well to help the lower income groups? Also, how can the Government prevent any disrupt in price stability?

Mr Lim Hng Kiang: What was put into the Budget package this year was done in consideration of the inflation situation we expected. We had expected inflation to remain stubborn this year and to tail off gradually towards the second half of the year. This was one of the key considerations in our Budget package which had a very generous and inclusive package for the low-wage households.

Mr Lim Biow Chuan (Mountbatten): Mr Speaker, the feedback given by my residents is that generally food prices have gone up. This is not just at the hawker centres but also from food purchased at the supermarkets. What they spend weekly at the supermarket has gone up quite drastically. Likewise, residents are also complaining that utility bills have gone up. Can I ask the Minister if there would be any plan to review the way utilities are charged for every consumer, in terms of how water and electricity usage is billed? Are there any other measures that the Ministry can implement to monitor the price of food? Would the Minister also consider monitoring rentals for shops and industrial properties, because this is how some of the inflation gets passed back to consumers?

Mr Lim Hng Kiang: I thank the Member for the questions. Basically, we look at the inflation situation as a whole and we also look at the components. For the utilities, our policy position, so far, has been the correct one. We ought to price utilities the way it costs us and not subsidise them directly. But we provide utility rebates to our households. This year, the Ministry of Finance has been rather generous. The utility rebates amount to more than $240 for the lower wage households. From our house visits, we know that $240 is a very significant assistance to our residents.

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On food: there is a wide range of food items. Overall, 3% is higher than what we normally experience, but, again, we have had a more challenging situation in 2008. And we managed to overcome that situation. Today, the situation is not as bad as 2008. On rentals of properties, whether they are commercial, industrial or residential, our approach is more to deal with it directly through addressing the supply constraints and making sure there is enough supply in the property market, whether commercial, industrial or residential. As Members have noticed, for commercial properties, the rentals have come down. We are similarly hopeful that this will also happen in the residential market. For the industrial property market, we have taken several steps, as I had mentioned in previous sittings, to make sure that the investment funds that are going into industrial properties do not cause a bubble to be built up in the industrial property segment.

Mr Speaker: Mr Liang Eng Hwa, last question.

Mr Liang Eng Hwa (Holland-Bukit Timah): Mr Speaker, Sir, I would like to ask the Minister whether we are increasingly seeing a trend of a higher propensity to consume and lower propensity to save, as a result of the persistently ultra-low interest rate, which disincentivises savings and encourages more spending due to the low cost of borrowing money. And I would like to ask if this is the key contributing factor that we are seeing higher domestic inflation. Can we really manage this domestic demand without having the interest rate as a policy tool?

Mr Lim Hng Kiang: Sir, I thank the Member for his very interesting question. I have to take a look at the numbers again, but my impression is that our savings rate has not come down. So, I assume, our consumption rate has not gone up significantly either, but it is worthwhile taking a deeper look into those numbers.