[h=1]Singapore Inflation Accelerates in February[/h]
[h=3]By MARTIN VAUGHAN[/h]SINGAPORE—Singapore's inflation hit an eight-month high in February, buttressing expectations that the central bank will maintain a tightening bias in its monetary policy when it meets in April.
A rise in prices in February had been expected because the Lunar New Year fell within the month and vehicle ownership costs had increased steadily, but the 4.9% year-on-year jump in the country's Consumer Price Index was well above January's 3.6% rise and the 4.1% increase forecast by nine economists in a Dow Jones Newswires poll.
Economists said the elevated inflation could cement for another six months the Monetary Authority of Singapore's current stance for slight Singapore dollar strength compared with a basket of its trading partners' currencies, although there was still a chance the central bank could relax policy slightly.
"Clearly, four to five percent inflation is uncomfortably high for Singapore, and I don't see that dissipating in the near-term," said Taimur Baig, chief economist for Singapore at Deutsche Bank DBK.XE -0.85% . "It will be a tough act for the authorities to communicate an easing of stance while inflation remains so high."
Inflation in the past two years has been high by historical standards. For most of the first decade of this century, inflation was in the range of 1% to 2%.
The MAS said Monday it expects headline inflation to remain between 3.5% and 4.5% in 2013, though Mr. Baig said he expects that range will be revised upward at its next semiannual policy meeting in April.
The MAS uses the Singapore dollar's exchange rate as its main monetary policy tool. Despite the weakness in the domestic economy, it has held a slight tightening stance by allowing a "modest and gradual" appreciation of the currency against a basket of currencies, though the local dollar has been weakening against the greenback this year.
The weak economy, due to slack demand from Singapore's major trading partners in Europe and the U.S., has led some economists to believe there was a growing chance that the MAS would slow the rate at which the Singapore dollar would be allowed to strengthen against the basket.
However, that option has become less likely after February's surprisingly high inflation data released Monday. "It's not an easy call, but there's got to be a pretty big question mark around possible easing given the CPI data," said Westpac WBC.AU +1.67% foreign-exchange strategist Jonathan Cavenagh.
Transport costs were the biggest driver in February's inflation run-up, as the price of government-issued certificates for vehicle ownership were running 25% higher than a year earlier, wrote DBS economist Irvin Seah in a research note.
But the cost of buying cars has eased substantially after the government placed limits on loans for private vehicles at the end of last month. At the last auction of ownership certificates March 13, the cost of a certificate to buy a car with an engine capacity above 1,600 cubic centimeters fell to 58,090 Singapore dollars (US$46,470) from S$92,667 on Feb. 20. The new car loan policy may have a damping effect on inflation in months to come, said Mr. Seah.
But labor costs, fueled by government restrictions on foreign workers, and housing costs will continue to put upward pressure on prices, Mr. Seah said. Residential rental contracts are still being reset higher, contributing to a 0.4% rise in overall accommodation costs in February from the previous month, according to the MAS.
Food prices in February rose 2.3% year-on-year, after rising 1.0% in January. This was related to a rise in food costs over the Lunar New Year, and a lower base of comparison as the holiday fell in February this year and in January last year.
Core inflation, which excludes accommodation and transport costs, rose to 1.9% from a year-on-year rise of 1.2% in January. That rise was partly due to an increase in the cost of maid services, after the government introduced new regulations that improved working conditions and pay for some domestic helpers.
[h=3]By MARTIN VAUGHAN[/h]SINGAPORE—Singapore's inflation hit an eight-month high in February, buttressing expectations that the central bank will maintain a tightening bias in its monetary policy when it meets in April.
A rise in prices in February had been expected because the Lunar New Year fell within the month and vehicle ownership costs had increased steadily, but the 4.9% year-on-year jump in the country's Consumer Price Index was well above January's 3.6% rise and the 4.1% increase forecast by nine economists in a Dow Jones Newswires poll.
Economists said the elevated inflation could cement for another six months the Monetary Authority of Singapore's current stance for slight Singapore dollar strength compared with a basket of its trading partners' currencies, although there was still a chance the central bank could relax policy slightly.
"Clearly, four to five percent inflation is uncomfortably high for Singapore, and I don't see that dissipating in the near-term," said Taimur Baig, chief economist for Singapore at Deutsche Bank DBK.XE -0.85% . "It will be a tough act for the authorities to communicate an easing of stance while inflation remains so high."
Inflation in the past two years has been high by historical standards. For most of the first decade of this century, inflation was in the range of 1% to 2%.
The MAS said Monday it expects headline inflation to remain between 3.5% and 4.5% in 2013, though Mr. Baig said he expects that range will be revised upward at its next semiannual policy meeting in April.
The MAS uses the Singapore dollar's exchange rate as its main monetary policy tool. Despite the weakness in the domestic economy, it has held a slight tightening stance by allowing a "modest and gradual" appreciation of the currency against a basket of currencies, though the local dollar has been weakening against the greenback this year.
The weak economy, due to slack demand from Singapore's major trading partners in Europe and the U.S., has led some economists to believe there was a growing chance that the MAS would slow the rate at which the Singapore dollar would be allowed to strengthen against the basket.
However, that option has become less likely after February's surprisingly high inflation data released Monday. "It's not an easy call, but there's got to be a pretty big question mark around possible easing given the CPI data," said Westpac WBC.AU +1.67% foreign-exchange strategist Jonathan Cavenagh.
Transport costs were the biggest driver in February's inflation run-up, as the price of government-issued certificates for vehicle ownership were running 25% higher than a year earlier, wrote DBS economist Irvin Seah in a research note.
But the cost of buying cars has eased substantially after the government placed limits on loans for private vehicles at the end of last month. At the last auction of ownership certificates March 13, the cost of a certificate to buy a car with an engine capacity above 1,600 cubic centimeters fell to 58,090 Singapore dollars (US$46,470) from S$92,667 on Feb. 20. The new car loan policy may have a damping effect on inflation in months to come, said Mr. Seah.
But labor costs, fueled by government restrictions on foreign workers, and housing costs will continue to put upward pressure on prices, Mr. Seah said. Residential rental contracts are still being reset higher, contributing to a 0.4% rise in overall accommodation costs in February from the previous month, according to the MAS.
Food prices in February rose 2.3% year-on-year, after rising 1.0% in January. This was related to a rise in food costs over the Lunar New Year, and a lower base of comparison as the holiday fell in February this year and in January last year.
Core inflation, which excludes accommodation and transport costs, rose to 1.9% from a year-on-year rise of 1.2% in January. That rise was partly due to an increase in the cost of maid services, after the government introduced new regulations that improved working conditions and pay for some domestic helpers.
