The Singapore economy looks set to remain robust despite some inflationary pressures.
This is the view of OCBC Investment Research, which is citing the strong growth in the construction, financial and services sectors. It also believes the anticipated slowdown in the US economy will have limited impact on Singapore because of its well-diversified economy.
Singapore's economy could well be growing at a 6.5 percent pace next year, according to OCBC.
This is at the top end of the government's forecast range of 4.5 to 6.5 percent.
And for this year, OCBC says Singapore could grow about 8.2 percent - also topping the official forecast of 7.5 to 8 percent.
But market watchers are taking rising costs in their stride.
Selena Ling, Treasury Economist, OCBC Bank, says: "I think we are going to see high inflation at least for the next 6 to 9 months. So as long as wage growth does keep in pace with inflation, I don't think it's a real concern. The foreign capital inflows should continue to sustain domestic interest rates on a slightly softer bias especially given that the US Federal Reserve is anticipated to cut rates further in the coming months."
The Consumer Price Index rose 3.6 percent on-year in October - its highest in 16 years.
And the Trade and Industry Ministry has already warned that inflation could rise to 5 percent early next year before tailing off.
And industry watchers say it is not only prices of imported components that have been rising.
On the domestic front, property prices and business costs have also headed higher.
The government has been taking steps to mitigate the risk of inflation while the central bank has said it will continue with the policy of a modest and gradual appreciation of its Singapore dollar policy band, although it will increase slightly the slope of the band.
But experts say there may be a limit to this.
Emmanuel Ng, Vice President, Treasury Research and Strategy, OCBC Bank, says: "I think foreign exchange policy can only do so much in terms of containing domestic based inflationary pressures. I think going ahead it would be interesting to see the government coming up with more targeted or surgical measures, essentially not to stifle growth or economic activity but essentially to let economy accommodate greater demands for example in the labour market."
He adds that the clearest example is the recent relaxation on the labour quotas in terms of foreign workers.
"So I think that is a very good example of how administrative measures would be targeted at alleviating cost pressures in the economy itself. So I think that would go somewhere in containing domestic price pressures within Singapore."
Some analysts say the Singapore dollar is expected to strengthen to about 1.32 against the greenback by the end of next year. - CNA/ch
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