Over the past few months, CPI accommodation costs were boosted by an unexpected surge in the number of tenancy contract renewals at current higher rental rates. This resetting of old rental contracts could persist into the second half of this year. We therefore expect accommodation costs to impact CPI inflation more strongly than previously. Second, private transport costs. COE premiums have risen faster than expected, reflecting rising incomes and sharp cuts in COE quota to its lowest in more than a decade. This uptick in headline inflation should be seen in perspective. A better measure of underlying price pressures in economy is MAS’ measure of core inflation. Core inflation excludes private road transport and accommodation costs, as these items are subject to short-term fluctuations. These items also do not affect the day-to-day outlay of most Singaporean households. Core inflation is the measure MAS monitors most closely, among a range of indicators. Compared to headline inflation, core inflation was much lower at 2.2% in April and May. This reflects in part MAS’ pre-emptive tightening of monetary policy in April and October last year, which has helped to dampen some cost increases. A stronger Sing Dollar has helped, not just by filtering oil and food price increases, but also by providing a restraining effect on the economy. The strong exchange rate has capped upward pressure on prices. For the whole of 2011, the projection for MAS’ core inflation remains unchanged at 2–3%. This is not to suggest we are entirely satisfied with the inflation situation.
By early 2016 mortgage debt to income ratio had dropped to 97%. It remained around that level until Covid, due in large part to house prices growing more in line with earnings. I should make clear here that London – and to a lesser extent the South and East – was very much an outlier during this period (Chart 1). For example, in London, house prices increased by 35% and the house price-toearnings ratio rose by 200 percentage points. The market in London was probably driven by the sheer weight of demand given employment patterns. But investor flows – including from abroad – and migration may have also played a role. Nationally, however, the picture over this period is of a less active market more in line with economic growth and with households staying longer between house moves. A simple thought experiment illustrates the unusual and quiet nature of the market for the UK as a whole over this period. In Chart 2, the blue line shows the flow of new mortgage borrowing since 2000. After rising through the first half of the decade, new lending drops of dramatically during the financial crisis. The red line shows what the flow of borrowing would have looked like, if, taking house prices at their outturn levels, mortgage transactions had levelled off at their financial crisis peak rather than falling back.