Business costs have risen alongside economic expansion
SINGAPORE: The city-state's economy may accelerate in the second half as manufacturing and services industries expand, the central bank said, underscoring the need for policy makers to remain alert on inflation.
Inflation pressures are likely to intensify after a higher tax on goods and services was imposed this month, and expanding payrolls and rising wages encouraged consumer spending.
The Monetary Authority of Singapore (MAS) said this year's inflation was expected to be at the upper half of its 0.5% and 1.5% range, and may be as much as 2% next year.
“Inflation will pick up into the second half of 2007,'' MAS managing director Heng Swee Keat said at a media briefing. “Business costs have risen alongside the strong growth in the economy, with some components including wages and rentals experiencing more rapid gains recently.''
Singapore's prime office rents have gained more than three times as fast as in rival hubs Hong Kong and Tokyo as investment banks and insurers expand operations on the island. Investors are also paying record amounts for luxury apartments, prompting MAS to warn it is studying such property price gains because of implications on other industries.
“The banking sector's exposure to the property and construction sectors as well as to housing loans is significant, and loans have grown over the last few quarters,'' Heng said. “We are watching developments in the market very carefully.''
Businesses are also facing higher costs as electricity tariffs rise and employers offer bigger salaries to fill job vacancies, which were 30% higher in March compared with a year earlier.
The average wages before accounting for inflation rose 5.5% in the first quarter, faster than the 3.1% rate of increase in the final three months of 2006.
“The MAS will maintain its vigilance against incipient inflationary pressures, including possible upward pressure on business costs,'' the central bank said in its annual report released yesterday. – Bloomberg