Singapore’s inflation in February held near the highest since 1982, signaling the central bank may allow the currency to strengthen to contain price pressures.
The consumer price index jumped 6.5 percent from a year earlier, after gaining 6.6 percent in January, the Department of Statistics said today. Economists had estimated a 6.8 percent increase. Prices rose 0.5 percent from January.
The Singapore dollar this month rose to an all-time high versus the U.S. currency, helping reduce import costs even as food and energy prices rose. The Monetary Authority of Singapore, which expects inflation this year to gain at more than double 2007’s pace, will release its twice-yearly review of the currency next month.
“It makes sense for the central bank to keep its stance of allowing the currency to appreciate as it will help the economy cope with imported inflation,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “Still, there are also domestic sources of inflation and other measures may be needed to bring that down.”
The Singapore dollar has gained 3.4 percent this year. The central bank, which has sought a “gradual and modest” strengthening in the currency since April 2004, said in October it would allow a “slightly” faster appreciation in the Singapore dollar.
The island’s currency fell 0.3 percent to S$1.3903 against the U.S. dollar as of 1:15 p.m. in Singapore.
Singapore’s central bank expects inflation to average between 4.5 percent and 5.5 percent in 2008, after gaining 2.1 percent last year.
“The underlying momentum in inflation remained stable,” the government said in a statement today.
Food prices, which make up 23 percent of the index, rose 6.7 percent in February from a year ago, following January’s 5.8 percent increase. From January, food prices gained 1.3 percent.
Rising prices of daily food essentials have prompted the government to roll out a campaign which included newspaper and television advertisements to encourage consumers to switch to cheaper frozen meats from fresh ones.
Transport and communication costs, the second-biggest component at 22 percent of the consumer price index, climbed 7.6 percent in February from a year earlier. From January, transport and communication prices fell 0.1 percent.
Oil prices breached $110 a barrel this month, increasing fuel and transport costs for consumers. The Singapore government doesn’t subsidize pump prices, leading petrol companies to pass on the rising gasoline and diesel costs to car owners.
Housing costs, the third-largest component of the price index, climbed 8.8 percent from a year ago. The increase came as the government raised property valuations for public housing at the beginning of the year. From a month ago, housing prices rose 0.5 percent.