ECONOMY | Cesar Tordesillas, Singapore

Inflation to rise along with Singapore's GDP growth

Singapore's inflation is expected to rise this year as economists upgraded their forecasts of gross domestic product growth to 6.2 per cent expansion this year.


The upgrade in the latest Monetary Authority of Singapore survey is an increase from their forecasts of 5.7 per cent just three months ago and is at the mid-point of the government's recently upgraded 5-7 per cent projection.

The quarterly poll, involving 21 economists surveyed last month, found that their median inflation forecast has now inched up to 4.1 per cent -- a notch higher than the 4 per cent they predicted back in March.

More significantly, this forecast surpasses the official tip of between 3 and 4 per cent inflation this year.

The Straits Times reported that economists, however, believed that rising food and oil prices and tighter foreign labour policies might feed into inflation in the second half of the year.

Bank of America Merrill Lynch economist, Dr Chua Hak Bin, said the current tight labour market and policies may create wage pressures that appear only later on.

"I think most agree that inflation has peaked but disagree with the government over how fast it will drop," said Chua, who expected inflation at 4.2 per cent for the year.

Barclays Capital economist, Leong Wai Ho, said as food prices seemed to stabilise, the threat of another food supply shock still remained.

He pointed this was especially so with the sudden dry weather causing droughts in China and Taiwan.

However, he said, inflation could still come in below 4 per cent overall, especially since car prices -- which form 16 per cent of the consumer price index -- were not accelerating.

His own forecast is for 3.7 per cent inflation.

Leong also pointed to new investments in the services sector, such as additions to office space in the Marina Bay Financial Centre, that had accelerated services growth.

Some economists, however, were more pessimistic about Singapore's growth prospects.

JP Morgan's Matt Hildebrandt has cut his growth forecast from 5.3 per cent to 4.7 per cent.

He cited a slowdown in global manufacturing, higher oil prices dampening consumer spending, and supply chain constraints after Japan's natural disasters.

"While we expect global growth to rebound in the second half, there are signs that the pick-up may not happen until later in the third quarter, or may not be as strong as we once thought.

"Any time global growth disappoints, Singapore's growth probably will too," he said.

The survey also noted that the Singapore dollar is expected to strengthen to S$1.21 against the greenback, up from the $1.23 prediction three months ago.

Interest rates are also expected to remain low, while bank loans should grow 15.8 per cent this year, said the survey.

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