Singapore's Inflation Slows on Food, Transport Costs

By Shamim Adam

Aug. 25 (Bloomberg) -- Singapore's inflation slowed for the first time in five months in July as prices of food and transportation eased, alleviating pressure on the central bank to allow faster gains in the currency.

The consumer price index jumped 6.5 percent from a year earlier, after rising 7.5 percent in June, the Department of Statistics said today. That was faster than the median forecast of a 6.1 percent increase in a Bloomberg News survey of nine economists. Prices rose 1.2 percent from June.

The Singapore dollar, which climbed to its strongest in more than a decade earlier this year, has since slid and is Asia's worst performer this quarter amid concern growth will slump. The Monetary Authority of Singapore this month said inflation probably peaked in June and will be lower in the second half of the year.

``There are telling signs that inflation is coming off and growth is moderating further,'' said Alvin Liew, an economist at Standard Chartered Plc in Singapore. ``The third quarter may give people a wake-up call on the growth outlook and that may keep the central bank from any further tightening.''

The monetary authority expects consumer prices to rise between 6 percent and 7 percent this year, the biggest gain since 1981. Inflation averaged 7.1 percent in the first half, and reached a 26-year high in April, May and June.

Prime Minister Lee Hsien Loong last week said the government will spend an additional S$250 million ($176 million) as it increases cash payouts and utility rebates to citizens to help them cope with higher food and energy prices.

April Tightening

``Inflation has turned out higher than we expected, especially electricity and fuel prices, and the economy is a bit more uncertain than the outlook at the beginning of the year,'' Lee said. ``After looking at the budget position, we can do a little bit more.''

The central bank in April said it would allow its currency to strengthen at a faster pace against the U.S. dollar, adding that the exchange rate remains its most effective tool to fight inflation.

The city-state's slowing growth momentum may prompt a shift in its stance, some economists say. The government lowered its target for economic expansion earlier this month, and predicts exports will decline for the first time since 2001.

``We recognize that a strengthening Singapore dollar could have some restraining effect on exports in the short term,'' Trade and Industry Minister Lim Hng Kiang said today. ``There is therefore a limit to how strongly the Singapore dollar can appreciate to offset the effects of global inflation passing through to the Singapore economy.''

Appropriate Stance

The Monetary Authority of Singapore on Aug. 11 said its monetary stance remains ``appropriate.'' The Singapore dollar has dropped 4.1 percent this quarter.

``At this stage, the current monetary policy stance remains appropriate in the context of achieving low inflation for sustained economic growth over the medium term,'' Lim, who is also deputy chairman of the central bank, said today. ``MAS will analyze inflation and growth data to determine the appropriate policy at its next scheduled policy review in October.''

Food prices, which make up 23 percent of the index, rose 8.5 percent in July from a year ago, following June's 9.2 percent increase. From June, food prices gained 0.7 percent.

Transport and communication costs, the second-biggest component accounting for 22 percent of the consumer price index, climbed 3.4 percent in July from a year earlier. From June, transport and communication prices fell 0.6 percent.

Oil prices have dropped more than a fifth since reaching an unprecedented $147.27 a barrel on July 11, prompting Singapore's petrol companies to cut pump prices for gasoline and diesel.

Housing costs, the third-largest component of the price index, climbed 12.5 percent from a year earlier. From the previous month, housing prices gained 4 percent.

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