Singapore’s inflation data took economists by surprise yesterday, and not just because it was the slowest pace in seven months. The jolt came from the source of the easing -- a health care subsidy for the elderly.
Consumer prices gained 0.6 percent in September from a year earlier, less than the forecast of all but two out of 20 analysts surveyed by Bloomberg News. Medical and dental fees rose 2.4 percent last month, down from 4.6 percent in August.
Driving that was medical and dental subsidies that took effect in September, part of the government’s S$9 billion ($7 billion) Pioneer Generation Package of benefits for about 450,000 elderly people. While the effect also helped cool core inflation, which excludes private road transport and accommodation costs, to below 2 percent, it could be distorting the actual state of inflation.
“I didn’t think it would be so substantial,” said Chua Hak Bin, a Singapore-based economist at Bank of America Corp., referring to the impact on inflation.
The subsidy isn’t “applicable to the broader consumer, it doesn’t apply to the average median household and it’s not a sign that the wage-cost pressures have abated,” he said.
Just how big is the subsidy? For select dental services it is as much as S$266.50 (US$212) per procedure; there is an additional 50 percent off subsidized services at polyclinics and specialist outpatient clinics.
A full set of dentures without the subsidy costs an average of S$250 to S$1,500 in a private clinic, according to the ministry of health.
The program benefits a “fairly narrow segment of the population” and the central bank will recognize it as a one-time adjustment, said Chua. Singapore, with a population of about 5.5 million people, has seen wage, private car and housing costs soar in recent years, prompting efforts to cool the property market.
For now, the subsidies may give a boost to the central bank’s goal of ensuring core inflation expectations stay at about 2.5 percent. They’ll have grandpa to thank.
