Sep 19, 2011

Though Singapore’s inflation rate hit 4.8 percent last year, it is expected to ease off to three percent this year, according to DBS.

“Inflation figures for August 11 will be announced this Friday and a forecast of 4.7 percent year-on-year has been pencilled in our forecast, down from 5.4 percent in the previous month,” it said.

“As pointed out in this space several times in the past, inflation has peaked at 5.5 percent in January and apart from the surprise spike in July to 5.4 percent, it should otherwise be on a sticky downward grind in the coming months.”

DBS noted that higher-than-expected domestic inflationary pressure has kept inflation elevated in the near term, despite the slowdown in commodity prices and global energy since Q2. However, this will likely change in the coming months. Given the uncertain economic conditions in the US and Europe, global economic activity is moving slowly.

“This could bring about deflationary pressure, which could spillover to the domestic CPI inflation,” said DBS.

Though inflation in 2011 was higher than expected at 4.8 percent, full-year inflation should ease off to 3.0 percent next year due to a slower global outlook.

In addition, “a dip in the headline number could increase the odds of a possible easing from the central bank in next month's policy review.”

“Though the authority will most likely maintain its current policy stance of a gradual appreciation in the Sing NEER, downside risk to growth and easing inflation could tilt policy decision towards a more neutral policy stance,” said DBS.

Info courtesy -