Nov inflation highest in 25 years at 4.2%

Jump triggered by hikes in costs of food, transport

SINGAPORE'S inflation accelerated in November to the highest in 25 years as consumers paid more for food and transportation.

The consumer price index jumped 4.2 per cent from a year earlier, after gaining 3.6 per cent in October, the Department of Statistics said yesterday. The figure, the highest since May 1982, exceeded the median estimate of 15 economists surveyed by Bloomberg News for a 3.8 per cent gain. Prices rose 0.6 per cent from October.

The Monetary Authority of Singapore expects consumer prices to rise next year at more than double the 2007 pace, suggesting it will allow the currency to strengthen further to curb consumer price gains.

The central bank in October said it would allow a 'slightly' faster appreciation in the Singapore dollar to damp decade-high inflation by making imports cheaper.

'We are seeing broad- based increases in inflation, not just in one or two items,' said Kit Wei Zheng, an economist at Citigroup Inc in Singapore. 'We'll see more inflation pressures in December and January, and the bias is towards further appreciation in the currency.'

Policy makers expect inflation in 2007 to average about 2 per cent, up from a previous range of between 1.5 per cent and 2 per cent. Consumer prices may rise between 3.5 per cent and 4.5 per cent next year, the central bank said.

The Singapore dollar has gained 5.4 per cent this year. The central bank seeks to keep the dollar from rising or falling outside an undisclosed band based on a basket of currencies of the city's biggest trading partners.

The central bank has sought a 'gradual and modest' strengthening in the currency since April 2004 and said on Oct 10 it will 'increase slightly the slope of the policy band.'

Food prices, which make up 23 per cent of the index, rose 5.2 per cent in November from a year earlier, following October's 4.3 per cent increase. From October, food prices gained 1.1 per cent.
Bus fares have increased in recent months, while the government has also raised road tariffs for motorists, resulting in an increase in transportation costs.

Transport and communication costs, the second-biggest component at 22 per cent of the index, climbed 5.6 per cent in November from a year earlier. From October, transport and communication prices rose 0.1 per cent.

Housing costs, the third-largest component of the consumer price index, climbed 2.9 per cent from a year ago, after a 2.3 per cent gain in October, yesterday's report showed. From a month ago, housing prices rose 0.7 per cent.

Recreation costs, which include holiday travel, gained 4.1 per cent in November from a year earlier and rose 0.6 per cent from the previous month. Prices of clothing and footwear rose 1.4 per cent from a year earlier and gained 1.8 per cent from October.

Inflation pressures are likely to increase as companies pass on rising business costs, economists said. Average monthly wages climbed 6.9 per cent last quarter, after rising 8.5 per cent in the previous three months, the government said this month.

'Inflation expectations may become more entrenched in wages as employees demand higher pay increases to keep up with rising prices,' Mr Kit said. 'At some point, businesses may have to pass these costs on to consumers.'