S’pore inflation rate climbs to highest in 18 months

Stephanie Phang

Singapore’s inflation accelerated to an 18-month high as record economic growth in the first half of the year spurred demand for goods and services, sustaining pressure on the central bank to allow currency gains.

The consumer price index climbed 3.3 percent in August from a year earlier, Singapore’s Department of Statistics said in a statement today. That matched the median estimate of 10 economists surveyed by Bloomberg News. Prices rose 0.5 percent from July, without adjusting for seasonal factors.

Singapore’s economy expanded at a record 17.9 percent pace in the first six months of the year, as surging exports bolstered manufacturing and the opening of two casino-resorts boosted services. The government, which expects gross domestic product to grow 13 percent to 15 percent this year, has tightened lending rules to curb speculation after home prices surged 38 percent last quarter.

“The economy still has some significant juice left for the upcoming laps, and the Monetary Authority of Singapore need not pause just yet,” HSBC Holdings Plc economists led by Frederic Neumann said in an e-mailed note today. The central bank will likely “continue its tightening bias in mid-October” by allowing a gradual appreciation in the currency, without any one-off adjustment in the exchange rate, they said.

The MAS uses the currency instead of interest rates to manage inflation, which it forecasts will average between 2.5 percent and 3.5 percent this year. The central bank tightened policy in April, saying it would shift the Singapore dollar to a stronger range to trade in and allow a gradual appreciation. It next reviews monetary policy in October.

Monetary policy

The Singapore dollar has gained 5.7 percent against its U.S. counterpart this year.

The central bank said in its annual report in July that “economic activity is likely to be sustained at high levels” for the rest of 2010, adding pressure on business costs and spurring inflation.

Housing prices, the biggest component of the consumer price index, climbed 3.1 percent from a year earlier in August, and transport costs increased 9 percent. Food prices rose 1.7 percent, today’s report showed.

Still, inflation “has been in line with expectation and will most likely come in within MAS’s target range,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “Hence, the current exchange rate policy stance has been appropriate given the outlook on inflation.”


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