* Jan CPI +4.8 pct y/y vs +5.5 pct in Dec
* Core inflation +3.5 pct y/y vs +2.6 pct in Dec
* Next monetary policy statement scheduled for April (Adds details)
By Kevin Lim
SINGAPORE, Feb 23 (Reuters) - Singapore's headline inflation rate fell to its lowest in eight months in January but the central bank's core measure of price changes rose, indicating inflation remains a concern and that monetary authorities are likely to keep policy tight.
The consumer price index (CPI) rose 4.8 percent in January from a year ago, the government said on Thursday, the lowest year-on-year increase since May and in line with the median forecast of economists polled by Reuters.
Core inflation, however, accelerated to 3.5 percent from December's 2.6 percent, and the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) warned inflation will likely remain elevated in coming months.
"Core inflation -- at 3.5 percent -- is now uncomfortably far above the MAS' forecast of 1.5 to 2.0 percent. In our view, MAS is likely to raise its core inflation forecast for 2012, given the broadening of inflation pressures outside housing and private transport," Bank of America Merrill Lynch economist Chua Hak Bin said in a commentary.
"Wage cost pressures, from a stricter foreign worker policy, are starting to show," he added.
Inflationary pressures in many Asian economies have begun to wane in line with the slowdown in growth. But Singapore's labour market remains tight and policies to limit the number of cars on the road have added to price pressures.
Singapore manages monetary policy by steering the value of the local dollar against a undisclosed basket of currencies. At its last policy statement in October, MAS retained its bias for a modest and gradual appreciation of the Singapore dollar but said it would reduce the pace of increase.
Kun Lung Wu, an economist at Credit Suisse, said the central bank will probably keep the appreciation bias when it issues its next policy statement in April.
"With both headline and core inflation likely to remain well above the historical average in April... we think the most likely scenario remains that the MAS will keep the Singapore dollar trade-weighted exchange rate on a mild appreciation trend of about 1-2 percent per annum.," he said.
Wu cited the high cost of transport and tight labour market as reasons for his forecast.
COSTLIER CAR CERTIFICATES
On Wednesday, prices of certificates of entitlement (COEs), which buyers must have before purchasing a motor vehicle, rose across the board due to strong demand and a smaller supply.
With the increase, companies wanting to buy a bus or good carrying vehicle must now pay S$52,004 ($41,300) for a COE, an increase of S$2,203 from the previous auction held about two weeks ago.
Singapore last week announced a budget that included numerous measures to stem the rise in low-cost foreign workers, and Finance Minister Tharman Shanmugaratnam said businesses had to "adapt to the permanent reality of a tight labour market."
MAS' core inflation measure excludes the cost of accommodation and private road transport, both of which are strongly influenced by government policy, to better track underlying price pressures.
In a commentary on January's inflation data, MAS and MTI said headline inflation will likely remain elevated in the first half of the year while core inflation could stay at around 3 percent in the next few months.
They, however, reiterated their forecast for headline inflation of 2.5 to 3.5 percent and core inflation of 1.5 to 2.0 percent this year.
"These projections are predicated on some moderation in domestic and external cost pressures in the second half of the year given the generally sluggish economic environment," the two bodies said. ($1 = 1.2593 Singapore dollars) (Additional reporting by Eveline Danubrata, Harry Suhartono and Mark Tay; Editing by Richard Borsuk)
33 comments