Check out why MAS gripped the exchange rate tighter

No, it's not about inflation edging up.

According to DBS, the CPI inflation number for September will surely raise some eyebrows. Latest August reading registered 3.9% YoY.

Here's more from DBS:

Market expectation is that the headline number will rise above the 4% YoY mark again. We have a forecast of 4.6% YoY penciled in.

Base effect, possible adjustment to the imputed rental, as well as further upward cost pressure from higher labour cost should deliver the upside surprise.

Transport and accommodation related inflation will remain the key drivers. But rapid increase in healthcare related costs in recent months is certainly a concern.

This sector is highly dependent on foreign labour. It is a classic example of how the tightening in inflows of foreign labour will severely impact the cost of living in Singapore.

Separately, some may argue that the pick-up in inflation is perhaps the reason why the MAS opted to maintain its tight handle on the exchange rate policy in its recent policy review.

However, we believe this has more to do with the risk of inflows going forward rather than just an upside blip to inflation reading.

With the Fed having rolled out QE3, the ECB having promised unlimited bond purchase in its OMT programme, and China with its stimulus plan in place, the authority is probably concerned with strong capital inflows going forward.

Indeed, Singapore’s foreign reserves have spiked up to a new historical high in September. This could perhaps provide a glimpse of the inflows ahead. However, we believe it will not be another 2010 in terms of the magnitude this time around.