Singapore’s Inflation Quickens to Fastest Pace Since January

Singapore’s inflation accelerated to the fastest pace since January as transportation and housing costs increased, maintaining pressure on the central bank to allow the currency to strengthen even as growth falters.

The consumer price index rose 5.4 percent last month from a year earlier, the Department of Statistics said in a statement today. That’s higher than the median estimate of 13 economists surveyed by Bloomberg News for a 5 percent gain. Inflation was 5.2 percent in June, according to previously reported data.

The Singapore government lowered its forecast for the economy’s expansion in 2011 this month even after the central bank raised its inflation estimate. The island’s currency has appreciated to unprecedented levels since the central bank said in April it would allow further gains to tame price pressures, the third monetary tightening in a year.

“Domestic inflation pressure is what will keep overall inflation elevated in the coming months,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report, citing rising wage costs. “While we believe inflation will ease, the decline will be significantly gradual.”

The Singapore dollar has gained more than 12 percent against the U.S. currency in the past year to be the best performer in Asia excluding Japan. It traded at S$1.2062 a dollar at 1:14 p.m. local time.

Hong Kong Inflation

The island’s central bank may maintain a stance of allowing modest appreciation in the local dollar in October because the threat from inflation remains, even as declining exports raise the risk of a “technical” recession, Song Seng-Wun, an economist at CIMB Research Pte in Singapore who has analyzed Asian economies for more than two decades, said last week.

Hong Kong’s inflation surged to the fastest pace since 1995, the government reported on its website yesterday. The consumer price index rose 7.9 percent from a year earlier after a 5.6 percent increase in June.

A currency peg to the U.S. dollar means that Hong Kong can’t use interest rates to tame price gains. The city’s inflation is likely to remain “notable in the near term” for reasons including elevated global food costs, the government said yesterday.

Singapore’s consumer prices may climb 4 percent to 5 percent this year, more than a previous forecast of 3 percent to 4 percent, the central bank said last month. Singapore, which uses the exchange rate as its main tool to manage inflation, said in April it would re-center the currency’s trading band higher.

Appropriate Stance

The monetary policy stance remains appropriate, Ong Chong Tee, deputy managing director at the central bank, said Aug 10. Policy makers are giving equal priority to containing inflation and spurring growth, Kwek Mean Luck, a deputy secretary at the Ministry of Trade and Industry, said the same day.

Still, a global stocks rout and a weakening world economic outlook may put pressure on Asian central banks to delay further monetary policy tightening after the region led interest-rate increases in the past year, even as inflation remains elevated.

“Inflation is becoming a less talked-about theme in recent weeks much due to the growing uncertainties in the global economy and risk aversion in the financial markets,” Seah said.

Analysts at Westpac Banking Corp. say Singapore will let its currency fall to arrest a slump in exports.

Prices rose 1.5 percent last month from June, without adjusting for seasonal factors, today’s report showed.