Inflation may have surged to 5.9% in February 2011

Inflationary risks are centainly rising and food inflation has also been steadily rising, said DBS.

Demand for food products typically picks up during the Lunar New Year and retailers will also take the opportunity to mark up their margins.

While this effect is most evident prior to the festive season, some spillover into the subsequent month can be expected. This implies higher food inflation. Note that food accounts for 22% of the CPI basket and food inflation has been rising steadily over the last one year.

Food inflation has risen from 0.2% last January to 2.8% in the first month of this year. And this is consistent with the UN food price index, which has already surpassed previous peak in 2008 and has continued to rise.

Supply side shocks account for most of the increases but strong demand on the back of buoyant economic growth, particularly in region should not be discounted.