Don't let lower inflation breed complacency

THE unexpected fall in Singapore's June inflation rate to below 2 per cent may be cause for some cheer, given the dismal output and trade figures of late. But Singaporeans should not grow complacent about price pressures.

The monthly inflation rate has been tame this year, far from the alarming 4-5 per cent levels of the last three years. On Wednesday, the government said inflation in June fell to 1.8 per cent. This was a sharper drop from May's 2.7 per cent than economists were expecting. But calmer headline inflation figures - thanks largely to stabilising vehicle certificate of entitlement (COE) premiums and home prices - must not mask the impact of rising prices on households, especially lower-income ones.

The official figures also show that inflation hit the poorest 20 per cent of households hardest - at 2.1 per cent over the first half of 2014. The Department of Statistics points out that imputed rentals on the homes people own and live in (a component of the consumer price index) weigh more in the lowest-income group's consumption basket, but are not out-of-pocket expenses. This does explain the figures for 2012 and 2013: once imputed rentals were excluded, the poorest faced a lower inflation rate than middle- and high-income households did in both years. But in the first half of this year, after excluding imputed rentals, the poorest fifth of households continued to experience the highest inflation rate of 2.0 per cent - compared to 1.7 per cent for the middle- and high-income groups.