Inflation here to stay sticky, say analysts

Inflationary pressures in Singapore's economy will not be shaken off easily this year, even though inflation will be milder than the 5.2 per cent recorded last year, according to DBS Bank.

The bank, meanwhile, projected a 3.5 per cent growth rate for the Singapore economy this year - 0.5 percentage point higher than the median estimate of 21 private-sector economists and analysts surveyed by the Monetary Authority of Singapore.

DBS revised upwards its inflation forecast for this year, from 4.1 per cent to 4.5 per cent.
For next year, the bank revised its forecast from 2.6 per cent to 3.1 per cent.

Both high Certificate of Entitlement premiums and high property prices will remain the main culprits behind inflation in the near future, DBS economist Irvin Seah said yesterday.

He noted that inadequate provision for housing in previous years has created massive demand in the sector.

UOB economist Alvin Liew held similar views, even though he noted a slide in oil prices. Oil futures hit an eight-month low in US trading yesterday, to US$79.92 (S$102) a barrel.

"It would have some dampening effect on the transport-cost component," Mr Liew noted.

He expects a more pronounced decrease in the inflation rate next month.

Apart from lingering inflation woes, growth is expected to be sluggish in the second half of this year, DBS projects.

"We expect the GDP growth on a quarter-on-quarter basis to fall back to 1 per cent. The chance of a negative is high," Mr Seah said, adding that it will probably negate some of the gains from the first quarter.

The economy expanded by 10 per cent on a quarter-on-quarter seasonally adjusted basis in the first quarter of this year.

The manufacturing sector's strong showing boosted the economy in the first quarter this year, but will likely moderate in the second half of the year, due to the downside risks in the global environment.

Mr Seah said that although questions over Greece's exit from the euro zone have been dispelled by the formation of a coalition government yesterday, the European debt crisis is far from over.

The sluggish pace of US recovery and its anaemic labour market, and signs of moderated growth momentum in Asia will impact Singapore's economic performance.