New foreign worker levies to pull up wage costs: UOB

Employers, July is back in town.

The Ministry of Manpower will be implementing another round of foreign worker levies next month, and administrative measures by firms will inevitably drive up wage costs.

As a result, inflation will continue to hike during the year, the key risk coming from domestic cost pressures due to Singapore’s tight labour market and firms’ competition to attract workers, according to a recent report by UOB.

The report warns that costs will rise for firms that are slower in business, especially if they are highly labour-dependent.

Here’s more from the report:

Singapore saw another month of higher consumer prices in May, as inflation rose further to reach 2.7% y/y, the highest since Mar 2013. Nevertheless, consensus forecast of 2.6% y/y was quite in line with the actual inflation rate as the low base effect resulting from the car financing measures implemented last year was already priced in. On a
sequential basis, consumer prices rose 0.5% m/m.

Presently, Singapore’s core inflation remains elevated and the latest reading is 42 bps higher than the 12-year average of 1.78%. We thus continue to believe that the MAS will maintain its current monetary policy stance of a “modestly and gradually” appreciation in the SGD NEER at its next policy meeting in October 2014.