MANAGING INFLATION

MANAGING INFLATION: 14.

Assoc. Prof. Paulin Tay Straughan asked 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.

The Senior Minister of State for Trade and Industry (Mr S Iswaran) (for the Minister for Trade and Industry): Mr Speaker, Sir, following the strong recovery in Singapore’s economy, headline inflation rose from 0.9% in the

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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 labour market. At the same time, food price inflation is expected to accelerate over the 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 was centred. 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 the Consumer Price Index (CPI) inflation will rise to around 4% at the end of 2010, it will moderate to around 2% in the second half of 2011.

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Singapore’s full year inflation in 2010 is expected to stay within the range of 2.5% to 3%. MAS expects CPI inflation in 2011 at 2% to 3%.

As the Finance Minister has said 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 defence against inflation is good quality jobs that provide good wage growth. The Government will continue to provide a favourable environment for businesses to thrive and for our economy to grow. At the same time, we also need the businesses and Singaporean workers to play their part in raising productivity, which will help mitigate the inflationary effects of wage increases in a tightening labour market.

Assoc. Prof. Paulin Tay Straughan (Nominated Member): Thank you, Mr Speaker. One supplementary question. Given the concern with food price inflation, will the Ministry consider lowering GST in the short run until inflation indications stabilise?

Mr Iswaran: Mr Speaker, I think the GST question should be directed to the Minister for Finance. I will, however, address the matter on food prices. I think our best strategy is really to ensure, first, that we have diverse food sources so that we are not locked into any one particular supplier which then means that if there is disruption, we have shocks in our system. The second thing is to ensure that the markets remain competitive. In other words, we have a competitive market for food products in Singapore as well and that will ensure that we are always given a supply of food which is competitively-priced, not necessarily lowly-priced because it depends on what the global market prices are. Those are our main strategies – diversification and competitive markets.

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Mdm Ho Geok Choo: Mr Speaker, I would like to ask the Senior Minister of State what measures would the Ministry consider to implement to help the low-income Singaporean families in such a situation.

Mr Iswaran: Mr Speaker, Sir. There is already a slew of measures in place arising from the Resilience Package that was implemented last year and that included measures like the Workfare Income Supplement Scheme. Apart from that, we have also got very targeted measures such as U-Save which is specifically aimed at utilities and for low-income households. I think the Government has given the commitment and continues to remain committed to ensuring that we will provide targeted assistance to those who need it.