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Singapore Inflation Hits 16-yr High on Food, Energy

Singapore's October inflation leapt 3.6 percent from a year ago to a 16-year high, reflecting higher costs for food and transport, data showed on Friday, putting pressure on the central bank to curb rising prices.



The unexpectedly high figure came just days after the government raised its inflation forecast for next year to 3.5-4.5 percent, with a peak at around 5 percent at the start of 2008.



In a note to clients headlined "Shock, horror", HSBC economist Robert Prior-Wandesforde said that prices were being pulled up by an almost perfect storm of rising prices for energy, food and commodities.



"The suggestion was that inflation would peak at around 5 percent in the first half of next year, which, if correct, would be the highest since April 1982. In some ways this simply illustrates how well Singapore has done in controlling inflation," he said.



"But by its own high standards, such an outturn would clearly count as a major shock in Singapore," he said.



The October consumer price index, or CPI, rose a seasonally adjusted 1.3 percent from September, its highest level since July. The Department of Statistics said in a statement that inflation averaged 1.6 percent in the first 10 months of 2007.



It also said that the figures partly reflected a 2 percentage point sales tax increase to 7 percent on July 1.



The central bank, which tightened monetary policy last month, faces the task of balancing the strong rise in inflation with the potentially devastating effects of any slump in the United States next year.



Earlier this week, the

Monetary Authority of Singapore

said its policy of a modest and gradual rise in the Singapore dollar was appropriate given the growth and inflation outlook and that it did not expect to change it in the foreseeable future.



"Nevertheless, we suspect that the MAS will find it hard to avoid a further tweaking of its currency stance at the next meeting in April if inflation is indeed running at or close to 5 percent," Prior-Wandesforde said, adding that even if prices eased in the second half of 2008, wage growth could trigger second-round effects on underlying inflation.



A sub-index for food, which at 23 percent has the largest weighting in the overall index, rose 4.3 percent in October from a year ago, while transport and communication, the second-biggest component in the index, also climbed 4.3 percent.



The statement does not include seasonally adjusted figures for the sub-indices.

Contact Asia Economy

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