23 Jan 08
Singapore’s inflation accelerated in December to the highest since 1982, placing pressure on the central bank to allow faster gains in the currency.
The consumer price index jumped 4.4 percent from a year earlier, after gaining 4.2 percent in November, the Department of Statistics said today. Economists had forecast a 4.3 percent increase. Prices rose 0.5 percent from November.
The Monetary Authority of Singapore, which expects consumer prices to rise this year at more than double the 2007 pace, in October said it would allow a “slightly” faster appreciation in the Singapore dollar. Economists expect the central bank to maintain that stance or say it will tolerate even bigger gains in the currency in its next policy statement in April.
“There is no sign that inflation pressures are abating,” said Joseph Tan, Asian strategist at Fortis Bank SA in Singapore. “The central bank will probably want to steepen the pace of appreciation in the Singapore dollar.”
Asian central banks including Singapore’s are combating rising prices at a time when growth in the U.S., the biggest market for most of the region’s export-reliant economies, is slowing. The Federal Reserve yesterday lowered its benchmark interest rate by three quarters of a percentage point, its first emergency cut since 2001, amid signs of a U.S. recession.
Singapore’s monetary authority expects consumer prices to increase between 3.5 percent and 4.5 percent this year, after averaging 2.1 percent in 2007. The central bank had forecast inflation to average 2 percent last year.
The Singapore dollar has gained 6.6 percent in the past year. A stronger currency helps cool inflation by making imports cheaper. The central bank seeks to keep the dollar from rising or falling outside an undisclosed band based on a basket of currencies of the city’s biggest trading partners.
The currency increased 0.6 percent to S$1.4388 per U.S. dollar as of 1:06 p.m. in Singapore, from S$1.4467 yesterday. The Straits Times Index was little changed, after gaining as much as 4.3 percent in morning trading.
The central bank has sought a “gradual and modest” strengthening in the currency since April 2004.
Food prices, which make up 23 percent of the index, rose 5.5 percent in December from a year ago, following November’s 5.2 percent increase. From November, food prices gained 0.6 percent, and were 2.9 percent higher for the whole of 2007.
Transport and communication costs, the second-biggest component at 22 percent of the index, climbed 6.4 percent in December from a year earlier. From November, transport and communication prices rose 1.2 percent.
ComfortDelGro Corp., Singapore’s biggest taxi company, raised cab fares by as much as 49 percent last month. Bus fares had also been increased in recent months, while the government raised road tariffs for motorists.