INFLATION IN 1987

Mr Chew Heng Ching asked the Minister for Trade and Industry if he will give the outlook for inflation in Singapore in 1987.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Deputy Speaker, Sir, Singapore experienced an inflation rate of minus 1.4% in 1986, the first annual decline in a decade. This disinflation was mainly attributed to the lower cost of food, clothing, housing and transport and communications. Almost half of the overall decline was contributed by oil-related items following the world-wide oil glut.

Negative inflation is unlikely to be repeated in 1987. Most countries are anticipating higher inflation rates as they project higher prices of primary commodities and oil in 1987. As Singapore depends to a large extent on imported products, we cannot be isolated from the influence of higher inflation in other countries. Based on these assumptions, MTI forecasts an inflation rate of about 1% this year.

Mr Chew Heng Ching (Kaki Bukit): Sir, may I ask the Minister whether the anticipated take-off in economic activity this year, which will result in a greater demand for goods and services, will have any likely impact on the inflation outlook which he has just painted?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, it depends. Most of our demand is external demand. The goods are sold overseas. The feedback is not into the prices within Singapore. There would be feedback within Singapore if wage increases, for example, are faster than productivity increases, so that workers are paid more than the value of the goods and the services which they produce. When too much money goes round chasing too few goods, inflation goes up. On present trends, there is no sign of that. Our unions are extremely reasonable. Wage settlements have been extremely moderate and, as Members have been informed by the Minister for Finance, last year wage increases were negligible, less than 1%. So I do not see any risk of that this year.