Singapore’s inflation slowed to a 20-month low in July, giving the central bank room to ease monetary policy as the faltering global economy threatens growth.
The consumer price index rose 4 percent from a year earlier, the Department of Statistics said in a statement today. The median estimate of 18 economists in a Bloomberg News survey was for a 4.5 percent increase, after a 5.3 percent pace reported earlier for June. The July core inflation rate was 2.4 percent.
Singapore trimmed its prediction for 2012 expansion this month and said the island’s growth outlook “remains cautious,” increasing pressure on the Monetary Authority of Singapore to join central banks from China to the Philippines in adding stimulus. The island has allowed the currency to strengthen to counter inflation and forecasts consumer-price gains will average 4 percent to 4.5 percent this year.
“Ultimately, the balance of risk has tilted toward growth and there is increasingly more scope for monetary policy accommodation,” Irvin Seah, a Singapore-based economist at DBS Group Holdings Ltd., said before the report. “Underlying inflationary pressure in the economy is expected to remain high. If policy is aimed at targeting inflation, growth will slow further.”
Credit Suisse Group AG today lowered its Singapore growth forecast for this year and next, saying manufacturing and services will be hurt as demand from the U.S. and Europe softens.
“With third-quarter growth likely to be weak and both headline and core inflation likely to come down significantly by the end of the year, we believe that the MAS will have some leeway to respond by easing to a slower pace” of Singapore dollar appreciation at its next meeting, Michael Wan, a research analyst at Credit Suisse in Singapore, said in a report. He predicted the economy will grow 2.2 percent in 2012 and 3.5 percent in 2013.
The monetary authority, which uses the exchange rate to manage inflation, said in April it would allow faster gains to damp price pressures. The central bank guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. The next policy review will be in October.
The Singapore dollar traded at S$1.2451 against its U.S. counterpart at 2:03 p.m. local time, climbing 0.5 percent. It is the best performer this year among the 11 most-traded Asian currencies tracked by Bloomberg.
“Given the generally sluggish economic environment, the pass-through of wages and other business costs to consumer prices will continue at a more moderate pace than that seen earlier this year,” the central bank and trade ministry said in a monthly statement on price trends today.
Housing costs will add “significantly” to inflation and there is an upside risk to the current forecast for price gains should car permit costs continue their recent surge, they said.
Prices rose 0.2 percent last month from June, today’s report showed.