Sept. 2 (Bloomberg) -- Singapore’s inflation rate will remain higher than 5 percent in the next few months even as “subdued” global growth may increase risks to the economy, the central bank said.
“Inflationary pressures remain strong,” the Monetary Authority of Singapore said in a report on its website dated Sept. 1. “Economic activity in Singapore is likely to grow modestly in the second half of the year,” supported by Asian demand even as weaker growth prospects in the U.S. and Europe heighten “downside risks,” it said.
Asian policy makers are juggling the need to contain inflation with protecting their economies from a faltering U.S. recovery and the European debt crisis. Singapore has cut its 2011 forecast for export growth as gross domestic product fell an annualized 6.5 percent in the second quarter from the previous three months, while the central bank raised this year’s inflation estimate to as much as 5 percent.
“The tight labor market could result in stronger wage growth and a greater degree of pass-through to services costs,” the central bank said in its quarterly update on recent developments in the economy. “Inflation is expected to remain elevated at slightly over 5 percent in the next few months, on account of continued strong increases in accommodation costs, before slowly trending down towards the end of the year.”
Car prices will also contribute to inflation the rest of the year, the authority said. Core inflation, which excludes accommodation and private road transport costs, may be 2 percent to 3 percent this year, it said.
The Singapore dollar has reached unprecedented levels since the central bank said in April it would re-center the currency’s trading band higher and allow further appreciation to tame price gains, the third policy tightening in a year. The island uses the exchange rate as its main tool to manage inflation.
“MAS’ latest move took into account the impact of the pre- emptive tightening moves in April and October 2010, which would continue to have a restraining effect on economic activity and prices over the rest of this year,” the central bank said.
--With assistance from Sean Collins in Singapore. Editor: Lars Klemming
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