Singapore inflation unexpectedly quickens, complicating policy

The consumer price index rose 5.7% in August from a year earlier, the Department of Statistics said in a statement today. That compares with the 5.2% median estimate of 18 economists surveyed by Bloomberg News. Inflation was 5.4% in July, according to previously reported data.

The Singapore dollar has declined this quarter along with most regional currencies outside Japan, as a struggling U.S. economy and Europe’s debt crisis dimmed the outlook for exports and prompted officials from China to the Philippines to avoid further rate increases. The island, which uses the exchange rate to manage inflation, will release its twice-yearly monetary policy decision in October.

 

“Higher than expected domestic inflationary pressure has kept inflation elevated in the near term even when global energy and commodity prices have eased,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said in a note before the report. “This will change in the months ahead.”

 

The Singapore government has lowered its forecast for the economy’s expansion in 2011 even after the central bank raised its inflation estimate. The island’s currency has appreciated to unprecedented levels since the central bank said in April it would allow further gains to tame price pressures, the third monetary tightening in a year.

 

While Singapore’s central bank will most likely maintain its current policy stance of a gradual appreciation in the Singapore dollar’s nominal effective exchange rate, “downside risks to growth and easing inflation could tilt the policy decision towards a more neutral policy stance,” Seah said.

 

Singapore’s consumer prices may climb 4% to 5% this year, more than a previous forecast of 3% to 4%, the central bank estimates.

 

The monetary policy stance remains appropriate, Ong Chong Tee, deputy managing director at the central bank, said Aug. 10. Policy makers are giving equal priority to containing inflation and spurring growth, Kwek Mean Luck, a deputy secretary at the Ministry of Trade and Industry, said the same day.