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Water price hike to temporarily push inflation up

SINGAPORE — The initial temporary impact of the water tariff hike, which will kick in over two phases starting from July, is estimated to add 0.1 percentage-point to both headline and core inflation this year, the Monetary Authority of Singapore (MAS) said in its Macroeconomic Review published yesterday.

SINGAPORE — The initial temporary impact of the water tariff hike, which will kick in over two phases starting from July, is estimated to add 0.1 percentage-point to both headline and core inflation this year, the Monetary Authority of Singapore (MAS) said in its Macroeconomic Review published yesterday.

Nevertheless, both the MAS core inflation — which excludes the costs of accommodation and private road transport — and the All-Items Consumer Price Index (CPI) are expected to come in at 1 to 2 per cent and 0.5 to 1.5 per cent respectively — unchanged from earlier projections.

The MAS noted that since late last year, there have been a number of announcements on administrative price increases, including higher car park fees and domestic refuse collection fees.

Other measures such as the increases in water prices and service and conservancy charges (S&CC) will be implemented later this year.

“These will contribute to higher inflation in the short term, although subsidies such as the increase in U-Save and S&CC rebates will help to offset the impact of the administrative price increases for eligible households,” said the MAS.

While such “administrative cost measures” would temporarily boost inflation, they were “in line with the need to reflect the true underlying scarcity value of resources”, the central bank said.

After more than two years of decline, consumer prices rose in December last year. In recent months, headline and core inflation have continued to rise, driven mainly by the turnaround in global commodity markets, the MAS said.

Global oil prices are expected to hover around current levels for the rest of the year.

The combined impact of higher commodity prices and administrative charges could result in some rise in business costs, it added.

Nevertheless, the pass-through impact to consumers will be limited, “given (the) continued slack in the labour market which should dampen consumer sentiment”, the MAS said.

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