CONCERNS over inflation are receding as oil and food prices come down and are expected to fall even more next year, said the Monetary Authority of Singapore (MAS) on Tuesday.
A weaker economy and property market will also mean lower consumer demand and falling rents, which will further help ease price increases and cost pressures, the central bank added in its latest Macroeconomic Review.
A major worry just a few months ago, inflation is now taking a backseat to GDP growth as Singapore's key economic concern amid a global slowdown. This was reflected in the MAS decision to shift to a zero appreciation policy for the Singapore dollar earlier this month.
The MAS expects inflation next year to taper off to between 2.5 per cent and 3.5 per cent, a far cry from this year's 6 to 7 per cent. Last month's inflation came in at a higher-than-expected 6.7 per cent on the back of higher housing and electricity costs.
Underlying inflation, which excludes housing and private transport costs such as road tax, is tipped to drop to around 2 per cent next year, from 5 to 6 per cent this year.
In contrast, the Government's full-year economic growth forecast has been lowered three times this year to 'around 3 per cent' now and is not expected to be much higher next year.
Some of the key sources of inflation in the first half of this year have already eased in recent months. Petrol pump prices fell in tandem with oil prices, while private road transport costs dropped due to lower road tax and falling COE prices.
Businesses will also see some relief from cost increases as labour, utilities and rentals - the major contributors to higher costs this year - are likely to see only modest gains next year, if any at all, said the MAS.
But it cautioned that costs have risen sharply in the last year in response to strong economic growth and will probably not drop significantly anytime soon.
Prices of basic food items such as wheat, maize and rice, for instance, have dipped in recent weeks, but are unlikely to fall back to the low levels seen in previous years.
