CITIGROUP has raised its 2008 inflation forecast for Singapore to a near three-decade high of 5 per cent from 3.8 per cent, and estimated that consumer prices in the city-state may climb 6 per cent in January.
Higher costs for housing, food, public transport and electricity tariffs will fuel the spike in inflation, Citigroup analyst Kit Wei Zheng said in a research note on Monday.'The spike in inflation in recent months has been self-inflicted, as it reflects cost pressures that are largely within the government's control,' Kit said, citing the two percentage point sales tax increase in July as an example.
The latest sales tax hike had a big impact on consumer prices in the city-state because almost all of it was passed on to consumers due to strong demand, unlike previous increases in 2003 and 2004 when only between 30-70 per cent was passed on, Kit said.
Given that rent and home prices in the city-state's property market will probably rise further this year on tight supply, and that a recent sharp fall in short term interest rates may fuel domestic consumption, Kit said he expects the Singapore central bank to tighten monetary policy.
'The case for a further tightening of monetary policy has become clearer after the recent fall in short rates,' he said.
'Lower interest rates have further loosened monetary conditions and could exacerbate inflation pressures.'
Singapore conducts monetary policy by managing the value of the Singapore dollar against a basket of currencies.
A red-hot property market, as well as higher energy and commodity prices, pushed Singapore's annual inflation in November to a 25-year high of 4.2 per cent.
The Singapore government said in November that inflation may hit 5 per cent early this year, but expects consumer prices for the full year to be below 3 per cent. -- REUTERS
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