Consumer price index: MTI rebuts ST commentary

The Straits Times, Published on Feb 9, 2012
Consumer price index: MTI rebuts ST commentary
MR AARON Low ('The dollars and sense of inflation'; Feb 1) implied that the recent consumer price index (CPI) report, with its new indicator, did not provide a full picture of the impact of price increases on the low-income group. The Ministry of Trade and Industry (MTI) would like to clarify four points.
First, he had assumed that housing rents paid by the low-income group for subsidised housing were excluded from the recently released indicator - 'CPI less imputed rentals on owner-occupied accommodation'. On the contrary, housing rents are in fact captured in the new indicator under the component 'rented accommodation'.

The new indicator is intended to provide an additional measure of changes in consumer prices. It excludes imputed rentals on owner- occupied accommodation, which is the notional amount a home owner has to pay if he was a tenant of his home, as this has no impact on the cash expenditures of households.
Second, Mr Low suggested using mortgage payments to reflect the cost of housing. The CPI is meant to measure the change in prices of a fixed basket of goods and services, and to only cover consumption expenditure. Expenditures on capital assets, such as housing mortgage payments, carry an investment component which should not be included in the CPI.
In Singapore's context, the investment component in mortgage payments is significant. The Department of Statistics adopts the rental equivalence method to reflect the consumption aspect of owner-occupied accommodation. This is an internationally accepted method recommended by the International Labour Organisation.
Third, according to Mr Low, higher certificate of entitlement (COE) premiums could still result in higher transport costs for households that do not own cars, through increases in taxi fares. Taxi fares are captured under the public transport category in the CPI, and Monetary Authority of Singapore (MAS) core inflation. As such, to the extent that higher COE premiums lead to higher taxi fares, the increase would be reflected in the CPI.
Finally, Mr Low referred to income data released by the Ministry of Manpower to draw inferences on the impact of inflation on the low-income group.
The CPI breakdown by the Department of Statistics for different income groups is at the household level, while the Ministry of Manpower's income data is at the individual workers' level.
It is therefore more appropriate to compare CPI by household types to household income data rather than referencing them to individual workers' data.
Cindy Keng (Mrs)
Director (Corporate Communications)
Ministry of Trade and Industry
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13Feb2012: CPI, inflation and the elephant in the room
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