Singapore Says Inflation to Stay Elevated After Reaching 5.4%

Singapore said inflation will remain elevated in the next few months after accelerating in April, as a surge in car-permit costs and rising wages add to price pressures in the city state.

The consumer price index rose 5.4 percent from a year earlier, after climbing 5.2 percent in March, the Department of Statistics said in a statement today. The median estimate of 17 economists in a Bloomberg News survey was for a 5.2 percent increase. The core inflation rate was 2.7 percent in April.

The Monetary Authority of Singapore raised its 2012 inflation forecast last month as it diverged from most other Asian central banks that have left borrowing costs unchanged or eased monetary policy in recent weeks. Higher oil costs, rising housing rents, more expensive private transportation and unemployment near a three-year low have sustained price pressures in the Southeast Asian nation.

“Inflation risk is still the biggest concern for Singapore,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. “While the global outlook has turned from bad to worse in recent weeks, policy makers are still struggling with high domestic inflation.”

The Singapore dollar traded at S$1.2769 against its U.S. counterpart at 12:29 p.m. local time. It has gained about 1.5 percent this year.

Singapore’s central bank, which uses the exchange rate to manage inflation, said last month it will increase “slightly” the slope of the currency trading band, and raised its forecast for consumer-price gains to 3.5 percent to 4.5 percent in 2012.

Policy Stance

The Monetary Authority of Singapore guides the local dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

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

Prices rose 0.5 percent last month from March, today’s report showed. Minister for Trade and Industry Lim Hng Kiang said last week inflation is estimated to remain at about 5 percent in the next few months.

Singapore controls pollution and congestion on its roads by selling a limited number of permits every year for each category of vehicles. The costs of licenses have surged this year as the government seeks to reduce the vehicle growth rate, with permit prices for a category of larger cars breaching S$92,000 ($72,000) earlier this month.

“Higher COE premiums will remain a key driver of inflation in Singapore in the coming quarters,” Seah said. “Even though Singaporeans who are not buying cars will not directly feel the pinch of higher COE premiums, companies will surely pass on the higher costs of commercial vehicles to consumers.”

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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