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What’s Happening with Singapore’s Economy?

Even though Singapore’s a small nation with ‘only’ 5.4 million residents, there’re still innumerable moving cogs in the economic machinery here. In light of that, here’re some interesting local developments that investors can take note of. This week’s edition brings us to how inflation in Singapore is picking up and what sectors might be adversely impacted.

Accelerated inflation In Singapore Economy

According to the Monetary Authority of Singapore (MAS), total inflation in Singapore is forecasted to come in at 1.5% to 2.5% in 2014, while core inflation is expected to be between 2% and 3%. Core inflation is a measure of inflation that excludes certain items that face volatile price movements; in our local context, it is one which “excludes the costs of accommodation and private road transport” according to MAS.

Moving on, the Department of Statistics Singapore recently reported that Singapore’s CPI (Consumer Price Index), a measure of inflation, has risen 1.2% in March this year as high prices from healthcare and food were mitigated by a fall in transport costs. March’s inflation figures were an increase over this February’s 0.45% gain. Incidentally, February’s inflation reading was also the lowest in the past four years for Singapore’s economy.

UOB’s economists Francis Tan and Jimmy Koh spoke to business newswire Biz Daily and commented that with a backdrop of a “resilient” economy and “global economic recovery”, businesses should “enjoy better pricing power and are more likely to pass on cost increases to their customers.” They added a prediction that “service-related firms with a higher share of labour costs (such as healthcare, cooked food, education, and recreation sectors) will be the first to pass on cost increases to their consumers.”

In light of the above, consumers might just see menu prices inching up at food & beverage (F&B) retail operators such as ABR Holdings (SGX: 533) (which operates the Swensens restaurants) and Japanese restaurant owner Sakae Holdings (SGX: 5DO), among others.

The Ministry of Trade and Industry (MTI) and MAS also mentioned that domestic cost pressures, such as those coming from a tight labour market, would likely be the primary source of inflation here in the future. Companies which operate in a price-competitive environment are likely to absorb the cost increases themselves as they’d find it tough to pass it on to consumers; this would hurt the profit margins of such companies going forward. Thus, it is advisable for investors to keep an eye on whether companies facing cost pressures – such as those from a  tight labour market, for example – are able to rectify this crucial issue.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.