Singapore inflation at 8-month low

Singapore’s headline inflation rate fell to its lowest in eight months in January but the central bank’s core measure of price changes rose, indicating inflation remains a concern and that monetary authorities are likely to keep policy tight. The consumer price index (CPI) rose 4.8 per cent in January from a year ago, the government said on Thursday, the lowest year-on-year increase since May and in line with the median forecast of economists polled by Reuters. Core inflation, however, accelerated to 3.5 per cent from December’s 2.6 per cent, and the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) warned inflation will likely remain elevated in coming months. “Core inflation - at 3.5 per cent - is now uncomfortably far above the MAS’ forecast of 1.5 to 2.0 per cent. In our view, MAS is likely to raise its core inflation forecast for 2012, given the broadening of inflation pressures outside housing and private transport,” Bank of America Merrill Lynch economist Chua Hak Bin said in a commentary. “Wage cost pressures, from a stricter foreign worker policy, are starting to show,” he added. Inflationary pressures in many Asian economies have begun to wane in line with the slowdown in growth. But Singapore’s labour market remains tight and policies to limit the number of cars on the road have added to price pressures. Singapore manages monetary policy by steering the value of the local dollar against a undisclosed basket of currencies. At its last policy statement in October, MAS retained its bias for a modest and gradual appreciation of the Singapore dollar but said it would reduce the pace of increase. Kun Lung Wu, an economist at Credit Suisse, said the central bank will probably keep the appreciation bias when it issues its next policy statement in April. “With both headline and core inflation likely to remain well above the historical average in April, we think the most likely scenario remains that the MAS will keep the Singapore dollar trade-weighted exchange rate on a mild appreciation trend of about 1-2 per cent per annum,” he said.