TWO-ROOM Housing Board households will continue to benefit from the GST Offset Package and the Workfare income supplement to help them cope with inflation this year.

These benefits will be equal to 12 per cent of their annual incomes, said Finance Minister Tharman Shanmugaratnam.

'Even if we exclude the benefits that they cannot use to meet their immediate expenses - in other words exclude the Post-Secondary Education Account top-ups for their children who are still in school, and the CPF component of WIS - the benefits add up to an average of 8 per cent of their incomes,' he said in his Budget speech in Parliament.

'The 8 per cent exceeds any increase in their overall cost of living that might be expected this year, and this is before counting any additional benefits that this year's Budget will provide them, and any growth in wages that they may get in 2008,' he explained.

Even four-room and five-room households will receive significant benefits this year as a result of what was announced last year, which will offset at least a good part of the increase in costs of living they experience this year.

The Minister said inflation, due to rising oil and commodity prices, is a major uncertainty in the global economy, and a concern for the Government.

After a period of very low inflation over the last 10 years, it has re-emerged and is now an economic problem everywhere in the world.

'The basic factors which have led to these price increases are not expected to go away soon. The demand for food especially has continued to rise globally, especially with the rapid growth of the middle classes in China and India.'

'This is part and parcel of expanding global prosperity, but it is happening at a time when food supply is constrained because of bad weather, and more agricultural land is converted from producing food crops to producing bio-fuels,' said the minister.

'We therefore have to brace ourselves for a period of relatively higher inflation globally, which will affect the prices of the goods we import. We cannot say how long it will last, but we have to expect that it will remain high, in the first half of this year especially. For example, China's worst winter in 50 years will likely add pressure to prices of certain foods in the next six months.'

He said inflation is expected to rise to 4.5 per cent to 5.5 per cent this year, and it will be higher in the first half of the year than the second.

The relatively high 'headline' Consumer Price Index (CPI) numbers are partly due to the GST increase in July last year.

But he said compared with prices last September, there has been little further increase due to the GST change.

'The GST change has caused only a one-off increase in prices, and not continuing price increases,' said Mr Shanmugaratnam.

Singaporeans have also not been materially affected by the GST increase, because the Government has provided the majority of citizens with substantial offsets, which more than make up for the increased spending on GST by most families.

'Lower-income families are in fact receiving offsets which are several times larger than their higher GST payments,' said the minister.

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