Published 19 May 2011
The Business Times
By Conrad Tan
Headline inflation put at 3-4% in 2011; food prices, capital inflows moderating
CENTRAL banks in Asia have been actively fighting inflation, which is likely to slow by next year, Monetary Authority of Singapore (MAS) managing director Ravi Menon said yesterday.
In Singapore, ‘headline inflation has probably peaked’ and is expected to average 3-4 per cent this year, he said at the start of a three-day conference organised by Bank of America Merrill Lynch. Core inflation, which excludes private transport and accommodation costs, is expected to be 2-3 per cent this year, he added.
But policymakers ‘will need to remain vigilant because the risks are not over yet’, he said.
Consumer prices are expected to rise by 5.1 per cent in the Asean-5 group of countries this year, compared to 3.8 per cent in 2010, driven by higher food prices, foreign capital inflows and greater utilisation of resources such as factory capacity and labour due to the strong rebound in economic growth in the region, he said.
The annual pace of inflation in Singapore reached a two-year high of 5.5 per cent in January, before slowing to 5 per cent in February and March, Department of Statistics data show.
The rise in consumer prices here has been due mainly to higher prices for transport, housing and food.
The inflationary pressures have prompted MAS to strengthen the Singapore dollar against other currencies, which helps to curb inflation directly by making imports such as foodstuffs cheaper.
‘Some of the price pressures facing Asia are no doubt structural,’ Mr Menon said.
The price of food and other commodities will continue to rise over the medium to long term as demand for them grows, especially in the emerging economies, while capital will continue to flow from the advanced economies to emerging economies, as investors seek the better returns offered by Asian assets, he said. ‘These two factors will be a source of inflation bias in emerging Asia over the medium term.
‘But a good part of the inflation in Asia is also temporary. The pace of food price inflation and capital inflows into Asia will moderate compared to the last two years.
‘Much of the recent food price increases reflect the impact of supply disruptions, and these are largely expected to be of a temporary nature.
‘Capital inflows are also unlikely to persist at the volumes seen in the last two years, as monetary policy settings in the advanced economies are normalised.’