June 23 (Bloomberg) -- Singapore’s inflation exceeded economists’ estimates in May as food and transportation costs increased, supporting the central bank’s decision to allow the currency to rise further.
The consumer price index rose 4.5 percent last month from a year earlier, matching April’s previously reported gain, the Department of Statistics said in a statement today. The median estimate of 11 economists surveyed by Bloomberg News was for a 4.1 percent increase.
Asian central banks from China to Thailand and India have raised interest rates or allowed their currencies to gain this year to curb price pressures as oil and food costs rise. Singapore’s economic expansion has pushed the unemployment rate to a three-year low and economists including Irvin Seah from DBS Group Holdings Ltd. say rising labor costs are adding to the risk that inflation may accelerate.
“Higher labor costs will eventually get passed on to end consumers,” Seah said before the report. “The risk is that such wage-driven inflation pressure could prove to be more persistent and broad-based.”
Singapore, which uses the exchange rate as its main tool to manage inflation, has allowed its currency to appreciate to a record to contain price gains.
The Monetary Authority of Singapore said in April it will re-center the currency’s band higher. 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$1.2346 a dollar at 12:29 p.m. local time.
Prices rose 0.6 percent last month from April, without adjusting for seasonal factors, today’s report showed.
Consumer prices will probably rise 4.1 percent this year, according to the median estimate of 21 economists in a survey by the Monetary Authority of Singapore released this month. The central bank forecasts inflation will average 3 percent to 4 percent in 2011.
Singapore’s unemployment rate was 1.9 percent in the first quarter and companies are increasing wages to retain workers as job vacancies rise. Average wages before adjusting for inflation rose 8.5 percent in the first quarter from a year earlier, the Ministry of Manpower said June 15.
“I expect price pressures to moderate going forward as I think they have already peaked,” Chester Liaw, an economist at Forecast Pte. in Singapore, said before the report. “A strong Singapore dollar will help alter price pressures, especially food prices and a lot of the outlook also depends on oil.”
--With assistance from Sarina Yoo in Seoul. Editors: Stephanie Phang, Alan Soughley
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