Singapore Forecasts Deflation in 2009 as Prices Cool Further

By Shamim Adam

Jan. 21 (Bloomberg) -- Singapore’s government forecast consumer prices may fall this year after inflation eased in December for a third month, giving the central bank room to allow the currency to weaken further and boost the economy.

Consumer prices may hold steady or fall 1 percent this year, the government said today. The consumer price index increased 4.3 percent last month from a year earlier, after gaining 5.5 percent in November, the Department of Statistics said. That was slower than the 4.7 percent median forecast of 12 economists in a Bloomberg News survey.

Easing prices have allowed policy makers worldwide to cut interest rates and increase public spending to stimulate their economies amid a deepening global recession. The Monetary Authority of Singapore, which uses the currency to manage inflation, stopped favoring gains in the local dollar in October.

“With the grim economic outlook for an open economy like Singapore this year, and the relentless decline in exports, the pressure is on for MAS to ease monetary policy to help with exports,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore.

Singapore’s economy may shrink as much as 5 percent this year, the most on record, the government said today. Finance Minister Tharman Shanmugaratnam will unveil the government’s plans to help companies and consumers in the 2009 budget tomorrow.

Inflation averaged 6.5 percent in 2008, within the central bank’s forecast of 6 percent to 7 percent. Consumer price gains reached 7.5 percent from April to June, the highest since 1982.

2009 Inflation

Food prices, which make up 23 percent of the index, rose 6.5 percent in December from a year earlier, following November’s 6.9 percent increase. Transport and communication costs fell 5.7 percent as gasoline prices dropped.

Inflation may ease in the coming months as electricity prices are reduced. Singapore Power Ltd., the island’s main electricity provider, cut charges for the January-to-March quarter by an average 24.7 percent.

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