But Singaporeans themselves will, at the same time, have to make adjustments, he said. One suggestion: Go for cheaper house brands.

'We can overcome this problem by working together. People making adjustments, the Government doing its part. We must stay together even during difficult periods,' said Mr Lee.

Speaking to 1,400 residents and grassroots leaders at a Chinese New Year dinner at his Teck Ghee constituency, he, however, rejected calls for the Government to control the prices of essential goods.

'Residents asked, 'Why can't the Government just control the prices?'' he recounted.

His response: Singapore is an open economy and imports all its food.

'We can't just order wholesalers and retailers to fix or reduce prices. They have to pay the overseas suppliers - who will bear the loss?'

If the Government subsidises essentials, it will be 'very expensive, and also ineffective'. As higher-income households spend more, such subsidies will benefit them more than the poor.

It is better to use the money instead to help the needy more directly, he said.

Thus, there are measures such as the Workfare Income Supplement Scheme as well as the Public Assistance Scheme, which is being reviewed.

At the same time, the Government is diversifying food sources, such as by importing frozen chicken from Brazil.

Consumers can also go for supermarket house brands, which are cheaper.

'No need to buy branded bread,' he said in Mandarin to laughter. 'Bread is bread, rice is rice.'

Most important of all is to grow the economy so wages will go up, he stressed.

Noting that 2007 was a good year, with workers receiving significant pay rises and bonuses, he quipped that government revenues 'have not been too bad either'.

Thus, Finance Minister Tharman Shanmugaratnam will distribute 'a little hongbao' in the Feb 15 Budget, especially for the needy.

'But we must be realistic,' he said. 'I read the wish list for the Budget in the newspapers, all hoping that the Government will give out exciting goodies.

'The Government will definitely help. But we cannot just distribute money and make the problem go away.

'Even with a good harvest, or during Chinese New Year, the Minister for Finance is not the cai shen ye!' he said, referring to the God of Fortune in Chinese mythology.

Inflation here hit a 25-year high in December, when the Consumer Price Index (CPI) jumped 4.4 per cent from a year ago. In particular, food prices were 5.5 per cent higher.

In a sign that the cost issue is high on the Government's agenda, four Cabinet and junior ministers - besides Mr Lee - spoke separately on it at the weekend, assuring that the Government will help.

The subject took up the bulk of Mr Lee's 20-minute speech, delivered both in English and Mandarin.

He started by noting that the Year of the Rat is beginning under 'more challenging circumstances' compared to previous years.

The financial markets are in turbulence, and the United States economy is slowing.

And the clouds will not be going away soon. In fact, Mr Lee warned that 'we must expect more uncertainties ahead'.

He expects the CPI to be high this year, especially in the first half: 'Last year, it was about 2 per cent. This year, it may be 5 per cent, it may even be more.'

Already, prices of Chinese New Year goodies such as pineapple tarts and bak kwa have increased, he noted.

But putting the grim outlook in perspective, he said that higher food prices is a global problem. Similarly afflicted are Malaysia, Indonesia and even Latin America.

On the whole, though, Singapore is in strong shape: 'We expect the economy to keep growing, though slower than last year. Whatever it is, I am confident that we can weather the storm.'

Calling on Singaporeans to stay with the Government and to keep Singapore competitive and growing, Mr Lee concluded: 'Then, whether it is the Year of the Rat or the Ox or Tiger, we will have the resources to deal with the challenges that come our way.'

xueying@sph.com.sg