Inflation rate for 2H10 unlikely to balloon to 4%- DBS

Base effect and the pre-emptive monetary tightening by the central bank in April are reasons why inflation is expected to come in at 3.5% YoY, just a tad below the previous month’s reading of 3.7%.

In a statement, DBS Bank said the move towards the 4% level, as what many had predicted, is not going to be a “hard and fast” one.

The bank noted, however, that domestic inflationary pressure is building up from the still booming property market as well as wage pressure from an increasingly tight labour market and hikes in foreign worker levies.

“Companies will surely have to factor in such increase in their labour cost component in their pricing behaviour at some point in time,” the bank said, adding that “capacity constraints and rising capital inflows into Asia are stoking regional inflationary risks [despite the subdued] imported inflationary pressure.”

DBS said that the October NODX figure released last week should put a stop to talks of an impending recession in 2H10. The headline export figure rose by a massive 34.5% (5.8% MoM sa) on account of turnaround in both electronics and pharmaceutical export sales.

The bank also expects the economy to grow by about solid 11% QoQ saar in the fourth quarter, up from the record contraction of 18.7% in 3Q10.

“A 33.3% YoY expansion has been penciled into our forecast as we expect both key electronics and the biomedical segments to deliver the goods. That will provide some much need growth juice to the overall manufacturing growth and drag the economy from the deep negative end of the growth spectrum back to the positive territory in the final quarter,” the bank said.