Singapore's inflation rate eases to 4.6% in February

SINGAPORE: Singapore's inflation rate eased to 4.6 per cent on-year in February 2012, from 4.8 per cent the previous month.

The rise in the consumer price index is well below the 4.9 per cent predicted by economists.

Data from the Department of Statistics (DOS) showed food inflation moderated to 2.6 per cent in February, from 3.8 per cent January.

The Monetary Authority of Singapore attributed the lower food inflation rate to a seasonal decline in non-cooked food prices following the Lunar New Year in January.

Compared to January, overall consumer prices fell 0.3 per cent in February, including a 1.4 per cent slide in transport costs.

The MAS' measure of core inflation, which excludes accommodation and private road transport, eased to 3.0 per cent in February compared to a year earlier, down from 3.5 per cent in January.

However, analysts said the slower rise in prices might be short-lived. Economists at Credit Suisse said the government might even need to raise its annual inflation forecast later this year.

In a statement, the MAS said "inflationary pressures since late last year have been more persistent than expected."

"Both CPI-all items inflation and MAS core inflation will remain elevated over the next few months, at around 5 per cent and 3 per cent year-on-year, respectively, before moderating gradually," it said.

The DOS figures showed housing costs continued to gallop higher in February, rising 9.5 per cent from a year earlier.

While the consumer price index eased overall, economists warn of higher inflation ahead - as the impact of tighter rules for employing foreign workers takes effect.

Leong Wai Ho, Senior Regional Economist with Barclays Capital, said: "This reducing of the dependence on blue collar employment will actually push up wages and this will be felt more acutely in the services industries. A wide spectrum of services industries - retail, transport, logistics and wholesaling - all these will be impacted.

"This structural cost adjustment will be the key theme for the inflation outlook this year and probably next year as well, as the economy absorbs the impact of higher labour costs. We will expect services costs to be significantly impacted by this pass through of higher wage cost."

Adding to the pressure is the persistent rise in oil prices.

Alvin Liew, Senior Economist with UOB, said: "Singapore, being so dependent on oil and natural resources, including energy imports, there will be some impact... The manufacturing sector will be hit with higher energy bills, you will see transport costs being more expensive - petrol being the key component in private road costs."

E Shailaja Nair, Senior Managing Editor of the Asia Central Editing Desk at Platts, added: "And also the trading, remember Singapore is also a trading hub. So that way, yes it will have an impact on that too."

Economists said the central bank may revise upwards its inflation forecast for the year, which currently stands at 2.5 to 3.5 per cent.

Even so, the MAS, which uses the exchange rate as a tool to control inflation, is not expected to alter its policy of a modest and gradual appreciation of the Singapore dollar, when it next meets in April.

Mr Liew said: "On a month-on-month basis, inflation will likely to be on the uptrend, and on a year-on-year basis, we may still see it hovering around the 4.5 to 4.8 per cent in the next months.

"Then in the second half of the year, hopefully if things get settled down more peacefully, prices will start to ease and the base effect would bring the headline numbers to below four per cent towards the end of the year."