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Times 25 Oct 007
Coming to grips with inflation
Straits Times 25 Oct 07
'Sense of panic' over rocketing food costs
Russia plans price controls, while China releases stockpiles
MOSCOW - ACROSS the world, prices of bread, pasta, potatoes and meat are going up, putting pressure on family budgets and governments.
Russia plans this week to impose Soviet-style price controls on a range of foodstuff to soften the blow ahead of parliamentary elections in December, the Financial Times reported yesterday.
The government has signed an agreement with major food retail chains and producers to freeze prices on staples such as milk, eggs, sour cream, bread, sunflower oil, sugar and salt.
The concern is that rising prices of staples would hurt the government when it faces parliamentary elections in December.
President Vladimir Putin has specifically and openly voiced worry about the impact of 'price growth, especially food price growth'.
Russia has also introduced export duties on wheat and barley, while Ukraine is considering export quotas on wheat, corn and barley.
Other countries have taken different measures to combat food price inflation.
China, for instance, has released stockpiles of pork and is considering doing the same for vegetable oil and grain. Bangladesh, Jordan and Egypt, which suffered 'bread intifada riots' in the 1970s, are raising subsidies or slashing import tariffs.
Mr Zhu Zhixin, vice-chairman of China's National Development and Reform Commission, told reporters last week, that the country 'should not lose sight of the dangers of failing to limit price increases'.
While he did not elaborate, there have been reports of unhappiness, including a protest by university students, over rising food prices. Pork prices, for instance, have shot up by more than 70 per cent from a year ago.
The prices of rice and coffee have leapt to 10-year highs, the Financial Times reported. Globally, prices of wheat and milk are at historic peaks.
Corn and soyabean prices have also risen steeply, above their 1990 averages.
International wheat prices have risen nearly 74 per cent since January, affecting consumers in all countries, including Singapore, where flour distributors say the price of bread is expected to rise by about 20 cents soon.
The price surge for grain has downstream effects. Pastries, pasta, noodles, bread, animal feed and meat now cost more.
Commenting on the huge jump in prices, Mr Abdolreza Abbassian, secretary of the grains trading group at the Food and Agriculture Organisation, told the Financial Times: 'There is a sense of panic.'
Several reasons are behind the food price inflation: Rising demand and changing diets in developing countries, harvests devastated by more frequent floods and severe droughts, as well as growing demand for crops such as corn for use in biofuels.
Things look grim, with Australian wheat farmers suffering the effects of the country's worst drought in a century.
In Argentina, where inflation this year is expected to be 8 per cent to 10 per cent, the government has struck accords with dozens of companies to control prices.
However, these efforts have not proved entirely successful.
The humble tomato - which has more than doubled in price in recent weeks - has led to Argentinian salad costing more than some cuts of beef and prompted a consumer boycott.
'I have never seen anything like this in my life,' said Ms Viviana Paz, 25, a domestic worker.
'I am not buying any tomatoes, and I am buying about half the vegetables I usually would.'
On Tuesday, the Italian authorities opened an investigation into pasta manufacturers over alleged price fixing.
Italian pasta makers have increased prices this year - expected to surge by 20 per cent by autumn - as durum wheat used for making the trademark Italian food nearly doubled in price.
In Japan, the government is also monitoring food prices.
Marudai Food said two weeks ago it will raise the prices of its ham and sausages, following rivals Nippon Meat Packers and Itoham Foods.
Instant noodle makers Nissin Food Products, House Foods and Sanyo Foods have also announced price increases last quarter. REUTERS, BLOOMBERG, WASHINGTON POST
Business Times 25 Oct 007
Coming to grips with inflation
WHILE laments about rising business costs are pretty much a perennial complaint from the business sector, over the last 10 years and more, consumer price inflation has virtually been a non-issue in Singapore; since 1995, the annual rate has barely breached 2 per cent.
But there is now growing concern about rising costs - both on the consumer and business fronts - and particularly about the impact on the average Singaporean as well as the economy at large. The concern is not misplaced, even if the Department of Statistics (DOS) maintains that there has been no uptick in inflation in the two months since the 2-point increase in the Goods and Services Tax in July.
To be sure, the one-off GST hike is the primary reason for the leap in the Consumer Price Index (CPI), from a 2007 first-half average of 0.8 per cent, to 2.6 per cent in July. It's important to note that the tax hike merely brings a one-off rise in price levels. Still, the July CPI figure is no 'blip' - going forward, the inflation rate will probably hover around this level, until mid-2008 when the effect of the GST increase disappears from the year-on-year comparisons.
As it turns out, the CPI increase picked up to 2.9 per cent in August, and then eased to 2.6 per cent last month. And prices actually dipped, by 0.3 per cent, from August to September, following a rise of the same magnitude from July to August. The months leading up to July saw similar CPI changes - which has the DOS pronouncing 'no uptick', that inflation has remained stable.
Be that as it may, other factors are at play to nudge the CPI - and other cost indices - upwards in recent and coming months. Top of the list would be record-high oil prices, which crossed US$90 a barrel last week. The spiral effects of surging oil prices reverberate across the entire economy, especially for oil importers like Singapore, and eat into corporate margins.
But while oil prices grab the headlines, economists warn of a possibly more insidious source of imported inflation: escalating global food prices. Particularly for non-food producers like Singapore, there can be little, if any, escape or respite.
Already, in September, the food component of Singapore's CPI - the biggest item at 23 per cent - rose 3.7 per cent as the costs of fresh vegetables, fruits, seafood, milk powder, as well as hawker and restaurant food, went up. Also, market forecasts indicate that the spike in global grain prices - the key trigger of the rise in global food price inflation - is not about to ease anytime soon. And food accounts for a bigger portion of the lower-income groups' household spending.
Adding to the inflationary pressures are otherwise positive factors associated with an economic boom: a tight labour market, rising wages, rising rentals, scarce capacity. Allowing a faster pace of currency appreciation will help contain rising imported inflation. Exporters may cry foul, but the alternative could be worse: an overheated economy with (by Singapore standards) intolerably high inflation.
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