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Next Week’s News Today – Is It Working?

They say that the proof of the pudding is in the eating. By this time next week we will find out just how good the cooks have been at driving up inflation.

In the US, the country’s Bureau of Labour will report on how quickly consumer prices rose in February. After pumping trillions of dollars into the US economy through Quantitative Easing, it is only reasonable to expect that the price of goods and services, as measured by the Consumer Prices Index (CPI), should be on the rise.

But in January it turned negative. That could help explain the US Federal Reserve’s reluctance to raise interest rates at the latest meeting of the Federal Open Market Committee.

Singapore also releases inflation numbers next week. Consumer prices in the Garden City have fallen for three straight months. The downward pressure on prices could continue.

In November they fell 0.3%. In December they were down 0.2% and in January, the CPI slipped 0.4%. Around a quarter of the index is made up of housing costs, which could continue to weigh on prices. That said, the drop in the value of the Singapore dollar could provide some respite as imported goods could cost more.

Elsewhere, Japan will report inflation numbers. The Land of the Rising Sun is hoping that its cocktail of monetary and fiscal measures will help to lift prices.

However, over the last three months, prices have risen at the same rate of 2.4%. Experts believe that that the CPI might not have gone up quite as quickly in February, as falling oil prices cancel out the increase in food prices.

Low inflation might seem like a good thing for us consumers. After all, no one wants to see the price of goods that we regularly buy rising quickly. But low inflation could be almost as painful as rapidly-rising prices.

It could mean that deposit rates won’t go up nearly as quickly, which could disadvantage savers who might depend on interest income. Dividend income could be a viable alternative, though. Currently, the payout from Singapore’s 30 largest companies that make up the Straits Times Index (SGX: ^STI) is around 3%.

Some blue chips could pay even more. Singapore Telecoms (SGX: Z74) is yielding around 4%; StarHub (SGX: CC3) has a yield of 4.7% and CapitaMall Trust (SGX: C38U) sports an historic yield of 5%.

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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 Director David Kuo doesn’t own shares in any companies mentioned.