Singapore Inflation Holds at 26-Year High of 7.5%

By Shamim Adam

July 23 (Bloomberg) -- Singapore's inflation unexpectedly held at 7.5 percent for a third straight month in June, signaling consumer price gains may have peaked after the central bank allowed faster appreciation in the currency.

The gain in the consumer price index was lower than all but one estimate in a Bloomberg News survey of 18 economists, where the median was for an 8 percent increase. Prices fell 0.3 percent from May, the Department of Statistics said today.

The Singapore dollar fell for a second day on speculation the central bank will keep its currency stance unchanged in its October policy announcement. The Monetary Authority of Singapore in April allowed its currency to strengthen at a faster pace against the U.S. dollar to fight inflation.

``We expect inflation to slowly ease back,'' said Alvin Liew, an economist at Standard Chartered Plc in Singapore. The central bank ``may be able to hold the current monetary policy in October, without the need for further tightening.''

The central bank, which expects Singapore's inflation rate to ease in the second half of the year, may review its forecast for price gains in 2008, Khor Hoe Ee, an assistant managing director at the monetary authority, said yesterday.

The authority in May raised its 2008 inflation forecast, predicting consumer prices will gain between 5 percent and 6 percent as record oil and food pushed up costs across Asia. The Singapore dollar fell 0.6 percent to 1.3598 against the U.S. currency as at 2:33 p.m. today, the biggest drop in five weeks.

`Considerable Threat'

``Inflation has now peaked, barring a renewed spike in commodity prices,'' said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore. Still, the government's inflation projection ``remains under considerable threat'' as a tight labor market threatens to spur price gains beyond food and fuel, he said.

Average monthly wages in Singapore climbed 11 percent in the first quarter from a year earlier, more than twice the rate of 4.3 percent in the previous three months.

``There is only so much the exchange rate can achieve and then it is up to the government to manage the situation either through fiscal tightening, or more likely, relaxing immigration controls,'' Prior-Wandesforde said.

Singapore's inflation averaged 7.1 percent in the first half. Record oil prices are increasing fuel and transport costs for consumers. The government doesn't subsidize pump prices, leading petrol companies to pass on the rising gasoline and diesel costs to car owners. Crude reached an unprecedented $147.27 a barrel on July 11.

Taxi Fares

Higher local taxi fares and road-access fees, as well as costlier food from neighboring Malaysia, may keep consumer prices elevated in the months ahead in Singapore, which imports 90 percent of its food needs.

The government has in recent months introduced new road tariffs or raised existing ones to ease congestion in the city- state of 4.6 million people. In Malaysia, the government estimates June's inflation rate may have jumped to the highest since 1982 after it raised fuel prices.

``There is some upside to inflationary risk in the second half due to an unexpected slew of transport price increases in Singapore,'' said Ng Shing Yi, an economist at United Overseas Bank Ltd. in Singapore. ``The first few months of the second half could continue to see inflation above 6 percent.''

Inflation will continue to ``plague'' most Asian economies on record global energy and food prices, the Asian Development Bank said yesterday. Central banks in the region need ``decisive tightening of monetary policies'' to combat the rise in prices, the Manila-based lender said.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net