Singapore inflation to rise to 4%: MAS

The central bank said the inflation rate will rise by the end of 2010 and stay high in the first half of 2011.

The Monetary Authority of Singapore highlighted higher price pressures from car, commodity, accommodation and domestic oriented services, with the ultimate expectation that “with the economy already operating at close to full employment, labor cost pressures have picked up and will persist into 2011”.

In a statement, MAS said the underlying inflation is expected “to average around 2% in 2010 and 2- 3% in 2011”. It also explicitly noted that “the balance of risks is weighted towards inflation going forward.”

The bank also tightened its potential monetary policy trajectory by increasing “slightly” the slope of the policy band “with no change to the level at which it is centered”. However, “The policy band will at the same time be widened slightly in view of the volatility across international financial markets”.

The monetary authority is expecting a slower pace of growth in major industrial economies, especially with fiscal consolidation in the G3 economies. Regarding Asia, the MAS reiterated that “growth will be supported by robust domestic demand and a resilient financial sector” and while some slowdown is expected overall economic conditions in the region are expected to remain firm. On Singapore, the MAS also expects the level of economic activity “to remain high across a broad range of industries although growth could further ease in the near term. In 2011, the domestic economy will continue to expand but at a more sustainable rate in line with its growth potential”.