Inflation Continued To Ease In February 09

The Straits Times
Page B17
Money
24.03.2009

INFLATION CONTINUED TO EASE IN FEBRUARY

0.5% drop in index marks 4th consecutive monthly fall and sets pattern of disinflation

By Fiona Chan

INFLATION continued to ease last month, dropping by more than economists had expected, as falling food and oil prices pushed costs downwards.

The consumer price index fell by 0.5 per cent over January, marking the fourth consecutive monthly decline and establishing a clear pattern of disinflation, or decreasing inflation.

On a seasonally adjusted basis, the index declined 0.8 per cent - the largest monthly fall since February 1982, according to HSBC economist Robert Prior-Wandesforde.

Food prices fell due to cheaper seafood, fresh vegetables, pork and cooked food, while housing costs dropped largely because of lower gas tariffs. As the prices of travel and holidays eased, recreation costs also dipped, said the Department of Statistics (DOS), which publishes the inflation data.

But economists were careful to distinguish the current trend of
disinflation from the more worrying pattern of deflation. They said the threat of deflation, in which prices and wages spiral persistently downwards in a destructive cycle, is still some way off - assuming it materialises at all.

On a year-on-year basis, consumer prices remained 1.9 per cent higher last month than a year ago, due mainly to higher costs of housing, food, health care and recreation.

Housing prices were still 6.6 per cent more than the previous year, while food costs were 4.3 per cent higher.

As disinflation gathers pace, however, year-on- year inflation is expected to turn negative in a few months, projected Citigroup economist Kit Wei Zheng. But he said this would largely be due to the less worrying 'supply-side deflation', which means prices are falling because of drops in the prices of raw goods such as oil and food.

On the other hand, if deflation starts to come from the 'demand side' -people willing to pay less for things because their wages are falling and the economy is doing poorly - that would be a bigger source of concern, he said.

Most economists believe inflation will be negative for the full year, due to falling commodity prices in the recession and partly because of the high base last year. This gives more room for the Monetary Authority of Singapore to allow the Singapore dollar to depreciate further at its regular policy meeting next month, they said.

A weaker currency helps exports but generally leads to inflation. In this disinflationary environment, however, that danger is lessened.

Meanwhile, the DOS also said yesterday that the lowest income earners in Singapore suffered the highest inflation rate in the second half of last year.

Although the general inflation rate was 6 per cent between July and
December, households in the bottom 20 per cent in terms of income earned experienced inflation of 7.5 per cent.

They bore the brunt of the price increases because a bigger proportion of their monthly income goes to food, housing and electricity, which all saw large rises in costs last year.

BTimes Financial News

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