Singapore Inflation Accelerates More Than Estimated to 5.2%

Singapore’s inflation accelerated more than economists estimated in March, justifying the central bank’s decision to tighten monetary policy this month.

The consumer price index rose 5.2 percent from a year earlier, after climbing 4.6 percent in February, the Department of Statistics said in a statement today. That exceeded the predictions of 17 of 18 economists in a Bloomberg News survey, where the median estimate was for a 4.7 percent increase. The core inflation rate was 2.9 percent in March.

The Monetary Authority of Singapore raised its 2012 inflation forecast this month as it diverged from most other Asian central banks that have left borrowing costs unchanged or eased monetary policy in recent weeks. The Singapore dollar is the region’s best performer this year as investors bet the island will tolerate a stronger currency to curb price gains that have been fuelled by more expensive home rentals and surging car permit costs.

“What’s been messing things up are the COE prices,” said Edward Teather, a Singapore-based economist at UBS AG, referring to the car permits known as certificates of entitlements. “If COE prices keep going up at their current pace, it’s going to make it difficult for the headline inflation numbers to fall.”

Teather had predicted a 5.3 percent rate for March, the closest estimate to the March figure.

The Singapore dollar traded at S$1.2485 against its U.S. counterpart at 2:49 p.m. local time. It strengthened as much as 0.1 percent after the inflation report.

More Expensive

The central bank, which uses the exchange rate to manage inflation, said earlier this month it will increase “slightly” the slope of the currency trading band.

“The way the currency policy works is that it makes Singapore more expensive relative to everywhere else,” Teather said. The inflation figures “imply that the currency will go up and that implies that Singapore will be less competitive.”

Singapore’s consumer-price gains will average 3.5 percent to 4.5 percent in 2012, the central bank said April 13, compared with a previous forecast range of 2.5 percent to 3.5 percent. It raised the core inflation projection, which excludes accommodation and private transportation costs, to a range of 2.5 percent to 3 percent from 1.5 percent to 2 percent.

Inflation will probably remain elevated over the next few months, before easing gradually in the second half of the year, the central bank and trade ministry said in a monthly statement on price trends today.

The currency policy stance already includes the central bank’s expectations that inflation will slow in the second half, Teather said.

Currency Appreciation

“I don’t think the idea that the currency appreciation will taper off in the second half of the year will happen,” Teather said. “Inflation will still remain at a level consistent with the upwardly revised forecast.”

Prices rose 0.8 percent last month from February, today’s report showed.

Singapore controls pollution and congestion on its roads by selling a limited number of permits every year for each category of vehicles, and the prices of the licenses have surged this year. Permit prices for a category of larger cars reached S$91,000 ($73,000) in an April 18 bidding, S$7,300 more than an April 4 auction.

“It is by no means impossible that the headline rate hits 6 percent in April,” Robert Prior-Wandesforde, a Singapore- based director of Asian economics at Credit Suisse Group AG, said in a note today. The central bank’s inflation forecast “is in danger of being broken,” he said.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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