Singapore inflation quickens even as economy slows

SINGAPORE - Singapore on Friday reported higher-than-expected November inflation even as industrial production surprisingly fell, putting pressure on the government to announce new measures to contain prices and keep costs down in its February budget.

Singapore's consumer price index rose 5.7 per cent last month from a year ago, accelerating from October's 5.4 per cent increase and matching the near three-year high seen in August.

Industrial production fell 9.6 per cent in November from a year ago, hurt by a 30.1 per cent plunge in electronics.

The government had already warned last month the Southeast Asian city-state's economy could contract in the current quarter when it cut its growth forecast for 2011 and the Monetary Authority of Singapore (MAS) expects inflation to ease in 2012.

'The MAS is between a rock and a hard place. You've got pretty sticky inflation and you've got an economy that is slowing,' said Matthew Hildebrandt, an economist at JPMorgan in Singapore.

He said private transport costs are high due to government measures to restrict the car population and tighter immigration policies mean labour costs are firm.

Citi economist Kit Wei Zheng said in a recent report that the Singapore would have to use fiscal policy measures to contain prices and cut business costs.

Inflation in most Asian countries has eased in recent months and economic growth slowed because of weakness in West, while China has begun easing restrictions on bank lending to help support its economy.

Singapore manages monetary policy by letting the local dollar rise against a basket of currencies, keeping import prices down.

But inflation in the city-state is currently at elevated levels partly due to high private transport prices, which have been affected by the government's decision to tighten the supply of certificates of entitlement (COE) that people must get before buying a car.

Singapore has also tightened its once-lax immigration policy, keeping demand for labour tight even as the economy slows.

The Monetary Authority of Singapore's (MAS) core inflation measure, which excludes private road transport and other components whose prices are influenced by government policy, rose by a smaller 2.4 per cent year-on-year in November.

Singapore next reviews monetary policy in April while its budget for the fiscal year beginning April is likely to be announced in February.

The central bank's current policy stance is to allow a modest and gradual appreciation of the local dollar.

Looking ahead, most market players expect inflation in Singapore to ease.

'After achieving about a 5 per cent growth in 2011, we expect GDP growth in Singapore to be at the lower end of the 1-3 per cent range forecast by the government. Against this backdrop, inflationary pressures will gradually abate into 2012,' said Cheng Duan Pang, head of fixed income at Manulife Asset Management in Singapore.

'We expect upward pressure on the Singapore dollar to reduce as the market will form expectations that monetary policy could revert to a neutral stance,' he added.

Song Seng Wun, regional economist at CIMB, said Singapore's manufacturing sector is likely to remain weak except for pharmaceuticals which has been boosted by new plant openings.

'Electronics will only start to improve once we start seeing the Europeans spend again. As for the US, even though fewer people are filing for jobless claims and we see modest improvement, but the economy is still not generating enough jobs to be supporting a strong recovery,' he said. -- REUTERS