Inflation up 4.7% in December 2010

Higher COE prices, food and fuel prices, on top of the festive season effect are the factors driving inflation higher.

According to DBS, in December, the COE prices hit a multi-year high; the global food price index by the United Nation surged passed the previous peak in 2008 whereas oil prices, though at about USD 90/bbl, appears to be inching gradually towards the USD 100/bbl mark.

While December inflation number will surely become the headline news, the point to note is that higher than normal inflation is here to stay for much of this year. Expect inflation to stay above the 4% level in the next few months with food inflation and the Chinese New Year effect coming into the limelight.

Going forward, oil prices and wage inflation will start to feature more prominently in the CPI index. Our forecast for full year inflation remains at 3.2%, which is higher than the official forecast range of 2-3%.