Singapore’s inflation may have dropped to 4.7% in August

Inflation figure for Aug11 will be announced this Friday and a forecast of 4.7% YoY has been penciled in our forecast, down from 5.4% in the previous month. As pointed out in this space several times in the past, inflation has peaked at 5.5% in January and apart from the surprise spike in July to 5.4%, it should otherwise be on a sticky downward grind in the coming months.

Yet, higher than expected domestic inflationary pressure has kept inflation elevated in the near term even when global energy and commodity prices have eased since the second quarter. This will change in the months ahead. Global economic activity is slowing given the economic woes in the US and Europe. This could bring about deflationary pressure, which could spillover to the domestic CPI inflation.

In fact, though inflation is likely to be higher than previously anticipated at 4.8% in 2011, full year inflation should ease off to 3.0% in 2012 in account of the slower global outlook. In addition, a dip in the headline number could increase the odds of a possible easing from the central bank in next month policy review. Though the authority will most likely maintain its current policy stance of a gradual appreciation in the Sing NEER, downside risk to growth and easing inflation could tilt policy decision towards a more neutral policy stance.