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Experts suggest ways to tame inflation
Delay cut to car growth rate, phase in foreign worker curbs gradually
Published on Oct 25, 2012
By Alvin Foo
STEPS can be taken to help control inflationary pressures, economists have suggested in the wake of worrying new inflation data.
These include delaying a planned cut to the growth rate of Singapore's car population - since rising car prices are a major element of rising inflation.
Another step: Phase in the stricter foreign worker policy over a longer timeframe to ease labour cost pressures, they said.
Worries over the pace of soaring prices here resurfaced on Tuesday, when new figures showed inflation rose sharply to 4.7 per cent last month from the same period a year earlier, reversing two months of falling levels.
The number exceeded the experts' expectations, and prompted some to tweak their full-year inflation forecasts upwards.
"The simplest thing that can bring down inflation is to have a recession," said CIMB regional economist Song Seng Wun.
OCBC economist Selena Ling said: "Nothing beats a good, old recession in that sense, but that's not what we want."
Bank of America Merrill Lynch economist Chua Hak Bin said the Government should consider postponing the scheduled reduction of the vehicle growth rate in February next year.
"There is a high risk of COE (certificate of entitlement) premiums breaching $100,000 if the scheduled cut goes ahead, driving headline inflation above 5 per cent as a result," he added.
Car prices and housing costs have been the key factors behind the pace of rising prices here over the last 18 months.
Another area of concern is home-grown inflation arising from a stricter foreign worker policy and tighter labour market.
Barclays Capital economist Leong Wai Ho said: "They could phase in the tightening over a longer period, and that will help to make sure we don't suddenly run short of certain parts of our labour spectrum."
Economists said a tighter labour market will support steady wage rises, which will be eventually passed through to consumers, especially in the service sector.
Mr Song said: "The easiest solution is to allow businesses to maintain a low-wage regime by importing labour. But this is not good for the longer run, if you want to move Singapore to a higher productivity plane."
Economists agree that monetary policy tightening should continue. Mr Leong noted: "This should probably continue until core inflation remains in a stable range of around 2 to 2.5 per cent."
Earlier this month, the Monetary Authority of Singapore (MAS) left unchanged its exchange rate policy - the Government's main tool to combat inflation, as it warned that the inflation threat is still present.
The MAS will continue to allow the Singdollar to rise at its current "gradual and modest" pace.
A stronger Singdollar helps keep inflation lower because imports, for example, cost less in Singdollar terms.
The Government could also do more to manage public expectations on inflation, economists said. This may include "giving clear guidance to reassure the public that some of these temporary factors, such as COE, will wash off", said Mr Leong.
Economists expect inflation to moderate this month owing to lower COE premiums, and cheaper electricity tariffs this quarter to contain inflation below 5 per cent.
"With a higher base, the inflation picture will look slightly less daunting in 2013," said Ms Ling.
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