Singapore cbank says inflation could ease to 3-year low

SINGAPORE, April 30 (Reuters) - Singapore's monthly inflation could average below 3 percent for the rest of 2013, easing to levels last seen three years ago as the recent fall in oil prices and government measures to rein in car prices take effect, its central bank said on Tuesday.

But core inflation, a measure that excludes accommodation and private road transport costs which are determined primarily by government policy, will likely edge higher in the second half of the year amid a tight labour market, the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review.

The review, which is usually released about two weeks after the central bank issues its biannual monetary policy statement, provides the analysis and assessment of Singapore's economy which form the basis for MAS' policy decisions.

" On a year-ago basis, core inflation is likely to stay at slightly above 1.5 percent in H1 before rising gradually to around 2.0 percent at the end of the year," MAS said in the review.

" In comparison, CPI-All Items inflation is forecast to fall from 4.0 percent in Q1 2013 and remain broadly stable at below 3 percent for the rest of the year, assuming COE premiums stay at around current levels," the central bank added.

MAS repeated its full-year forecast for headline inflation of 3-4 percent and core inflation of 1.5 to 2.5 percent, which it made when it kept its stance of allowing a modest and gradual appreciation of the Singapore dollar against a basket of currencies.

Singapore has been suffering elevated inflation over the past two-and-half years, due in part to a housing shortage that has driven up rents as well as government measures to slow the growth in its car population.

The smaller number of certificates of entitlement (COEs), which are incorporated into the price of a new car, pushed prices to the stratosphere, with the asking price of a made-in-Thailand Toyota Vios rising to S$140,000 ($113,200) earlier this year -- around 45 times the city-state's median monthly salary.

Even though COE prices have fallen by a third since the government tightened financing rules, a new Vios still costs around S$100,000, according to SGcarmart.com, a popular motoring website.

MAS said that if its baseline scenario turns out to be incorrect and COE prices return to the levels seen at the start of the year, headline inflation will decline temporarily in the current quarter before recovering to around 3.5 percent in the last three months of the year.

WAGE GROWTH, MANUFACTURING

Singapore's inflation rate was 4.6 percent last year, below 2011's 5.2 percent but well above the average of around 2 percent in preceding years. March's consumer price index (CPI) increase of 3.5 percent year-on-year was the lowest in over two years while inflation last came in below 3 percent in June 2010.

The central bank said it expects wage growth this year will likely pick up to around 3 percent from 2.3 percent last year as the labour market remains tight due to ongoing government moves to restrict the hiring of low-cost workers from abroad.

For the year as a whole, the overall unemployment rate is expected to remain low at around current levels, it added. Singapore earlier on Tuesday said the city-state's jobless rate was 1.9 percent in the first quarter, up from 1.8 percent in the last three months of 2012.

MAS said firms had been absorbing the higher manpower cost and that profit margins are currently at unusually low levels. As such, firms are likely to partially restore margins by passing on some of the cost increases to consumers this year.

The central bank was, however, confident of a recovery in manufacturing this year and reiterated its forecast for an expansion of 1-3 percent for 2013, notwithstanding weak March industrial production data that caused several economists to cut their Singapore growth forecasts.

Reasons for its bullishness include leading indicators that show an improved outlook for the semiconductor industry, investment commitments made in recent years and production from new facilities such as oil rig builder Sembcorp Marine's integrated yard facility.

" Over the medium term, while domestic cost pressures from the restructuring drive could cause less-sophisticated production to relocate out of Singapore, high-end manufacturing activities should increasingly be anchored here," MAS said. ($1 = 1.2364 Singapore dollars)

(Reporting by Kevin Lim Editing by Kim Coghill)