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PR Newswire
19-05-2011, 08:50 AM
May 19, 2011
MAS: Inflation set to ease for the rest of 2011
Price rises have probably peaked due to strong S$, will average 3%-4% this year
By Jonathan Kwok
INFLATION has probably peaked and will average between 3 per cent and 4 per cent this year, according to Monetary Authority of Singapore (MAS) managing director Ravi Menon yesterday.
The Consumer Price Index rose 5.2 per cent in the first quarter but the central bank expects price rises to ease, thanks in part to the strong Singapore dollar.
The currency is trading at near record levels against many major currencies and has played a major role in keeping prices in check. The US dollar was worth S$1.24 yesterday, close to its all-time low of $1.22.
The MAS preemptively tightened exchange rate policy in April last year and followed up with more tightening in October and again last month.
'Allowing the Singapore dollar to strengthen has had a dampening effect on inflation in Singapore, which would otherwise have been much higher,' noted Mr Menon, who was speaking at the Bank of America Merrill Lynch Asian Stars Conference at the Ritz-Carlton Millenia Singapore.
The three-day conference ends tomorrow and involves participants discussing the outlook for sectors including commodities, financials, consumer goods and property.
Mr Menon added that a 'good part of the inflation' in Asia, which is coming from rising commodity prices and capital inflows, may be temporary. Capital inflows are also unlikely to persist at the volumes seen in the past two years, he said.
Central banks in most Asian economies have been trying to fight inflation, he added.
But he did not want to play down the danger of rising prices in Asia, noting that 'no central banker would take a light attitude towards inflation risks'.
Structurally, the relative price of food and commodities will still increase over the medium to long term on the back of growing demand, especially from emerging markets, he said.
Also, the flow of capital from advanced economies to emerging ones will not stop and these two factors will drive prices up in the region in the medium term.
Bank of America Merrill Lynch's chief economist for Asia, Mr T. J. Bond, also warned about inflation.
He told the conference that the inflation concern for Asia will continue into next year.
'We have not seen enough policy tightening (in the region) to change growth outlook. That's good news for growth. We have not seen enough policy tightening to change inflation outlook. That's bad news for inflation,' he added.
Mr Bond noted that headline inflation rates are about to peak, with food prices appearing to be easing and oil prices suffering a sharp decline.
But core inflation - which excludes items that experience volatile price movements - will continue to rise, he said.
'This really reflects the strong domestic demand, the high levels of resource utilisation, the high levels of capacity utilisation, and a tightening labour market that we have in China and in the region,' added Mr Bond.
'Central banks respond to core inflation, rather than headline inflation. Where we sit, the monetary tightening process is not over. Clearly we could slow down a little bit but interest rates are going to continue to rise straight through the end of 2012.'
jonkwok@sph.com.sg
MAS: Inflation set to ease for the rest of 2011
Price rises have probably peaked due to strong S$, will average 3%-4% this year
By Jonathan Kwok
INFLATION has probably peaked and will average between 3 per cent and 4 per cent this year, according to Monetary Authority of Singapore (MAS) managing director Ravi Menon yesterday.
The Consumer Price Index rose 5.2 per cent in the first quarter but the central bank expects price rises to ease, thanks in part to the strong Singapore dollar.
The currency is trading at near record levels against many major currencies and has played a major role in keeping prices in check. The US dollar was worth S$1.24 yesterday, close to its all-time low of $1.22.
The MAS preemptively tightened exchange rate policy in April last year and followed up with more tightening in October and again last month.
'Allowing the Singapore dollar to strengthen has had a dampening effect on inflation in Singapore, which would otherwise have been much higher,' noted Mr Menon, who was speaking at the Bank of America Merrill Lynch Asian Stars Conference at the Ritz-Carlton Millenia Singapore.
The three-day conference ends tomorrow and involves participants discussing the outlook for sectors including commodities, financials, consumer goods and property.
Mr Menon added that a 'good part of the inflation' in Asia, which is coming from rising commodity prices and capital inflows, may be temporary. Capital inflows are also unlikely to persist at the volumes seen in the past two years, he said.
Central banks in most Asian economies have been trying to fight inflation, he added.
But he did not want to play down the danger of rising prices in Asia, noting that 'no central banker would take a light attitude towards inflation risks'.
Structurally, the relative price of food and commodities will still increase over the medium to long term on the back of growing demand, especially from emerging markets, he said.
Also, the flow of capital from advanced economies to emerging ones will not stop and these two factors will drive prices up in the region in the medium term.
Bank of America Merrill Lynch's chief economist for Asia, Mr T. J. Bond, also warned about inflation.
He told the conference that the inflation concern for Asia will continue into next year.
'We have not seen enough policy tightening (in the region) to change growth outlook. That's good news for growth. We have not seen enough policy tightening to change inflation outlook. That's bad news for inflation,' he added.
Mr Bond noted that headline inflation rates are about to peak, with food prices appearing to be easing and oil prices suffering a sharp decline.
But core inflation - which excludes items that experience volatile price movements - will continue to rise, he said.
'This really reflects the strong domestic demand, the high levels of resource utilisation, the high levels of capacity utilisation, and a tightening labour market that we have in China and in the region,' added Mr Bond.
'Central banks respond to core inflation, rather than headline inflation. Where we sit, the monetary tightening process is not over. Clearly we could slow down a little bit but interest rates are going to continue to rise straight through the end of 2012.'
jonkwok@sph.com.sg
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