Singapore's Inflation Holds at 14-Month High as Recovery Spurs Price Gains

Singapore’s inflation held at a 14- month high in May as the island’s economic rebound boosted food, housing and car prices.

The consumer price index climbed 3.2 percent from a year earlier, Singapore’s Department of Statistics said today in a statement. That was more than the 3 percent median estimate of 11 economists surveyed by Bloomberg News. Prices rose 0.6 percent from April, without adjusting for seasonal factors.

Singapore’s economy expanded an annualized 38.6 percent from the previous three months in the first quarter as overseas demand for its manufactured goods recovered from last year’s slump. That’s boosted hiring and brought the unemployment rate to 2.2 percent, the lowest level in almost two years.

“Wages are rising as the labor market starts to tighten, and that should set the conditions for demand-pull inflationary pressure to kick in,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. “Though growth momentum is expected to moderate going forward, inflation will still hang above the 3 percent mark for the rest of the year.”

Housing prices, the biggest component of the consumer price index, climbed 1.6 percent from a year earlier, and transport costs increased 15 percent. Food prices rose 1.3 percent.

The cost of buying cars and motorcycles has surged as rising demand and falling supply caused the prices for some vehicle permits to more than double since the end of December. Singapore controls pollution and congestion on its roads by selling a limited number of permits every year for each category of vehicles.

Monetary Policy

The decline in the Singapore dollar in May probably pushed consumer prices higher by making imports more expensive, Seah said. The currency slid about 2 percent against the U.S. dollar during the month.

The Monetary Authority of Singapore, which uses the currency instead of interest rates to conduct monetary policy, said in April it would undertake a one-time revaluation of the currency and allow a gradual and modest appreciation. Inflation will probably average between 2.5 percent and 3.5 percent this year, the central bank said.

“There is nothing really much monetary policy can do if higher inflation is driven by food prices,” Song Seng-Wun, an economist at CIMB Research Pte in Singapore, said before the report. “If we see higher prices outside of food, accommodation and transportation, then the central bank will pay more attention.”

To contact the reporter on this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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