atans1

Linking why staple food agribiz is a gd bet & why the 2.5% CPF rate sucks & a constructive, nation-building suggestion

In CPF, Financial competency on 26/06/2014 at 4:32 am

Change in price

So investing in agribiz that are connected with stapled foods makes gd sense and why recent inflation rates should not have surprised

  • 2010 – 2.8%
  • 2011 – 5.2%
  • 2012 – 4.6%
  • 2013 – 2.4%

It’s largely about the rising cost of staples (and oil at around US$100). Tuesday’s BT reported

Last month’s moderation in core inflation was due to lower contributions from food items and services. Food inflation came in slightly lower at 3 per cent in May compared with 3.1 per cent in the previous month, reflecting a smaller increase in non-cooked food prices.

Services inflation edged down to 2.5 per cent from 2.7 per cent in April, as holiday travel costs and health insurance premiums rose more moderately.

But Barclays and CIMB economists believe the reprieve will be short-lived. Said CIMB economist Song Seng Wun: “Services inflation is going to go up as a result of domestic cost pressures – and firms are likely to pass these on to consumers.”

MAS and MTI reiterated that core inflation is projected to “stay elevated” at 2-3 per cent in 2014, while headline inflation is expected to come in at 1.5-2.5 per cent.

So time for govt to increase the basic CPF rate? After all in the not so distant past, one reason it gave for the rate, was that it was above inflation of around 1%.

As to the excuse of low the yield on govt bonds are, well the govt is already paying more than the yield on govt bonds. It knows that cutting the rate would seriously damage its credibility with the 35% swing voters. So increasing the yield by another 0.5% should be considered.

After all Temasek and GIC, as savvy investors, should have been buying agricultural land in the West. The govt can use the profits from these investments to fund an increase to 3%.

 

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