Singapore's economy is gradually regaining its upward momentum as the developed nations recover, prompting the central bank to tip "modest growth" for the local economy this year and next year.
Get the full story from The Straits Times.
SINGAPORE (Reuters) - Singapore is expected to see inflation pick up in the next few quarters before tapering off towards the end of 2014, the central bank said on Tuesday, as cost pressures arise from efforts to stem the flow of foreign workers to the city-state.
"In the next few quarters, an anticipated rise in labour demand will come up against binding labour supply constraints across more sectors of the economy," the Monetary Authority of Singapore (MAS) said in its half-year macroeconomic review.
"Coupled with the low base in the past year, core inflation will rise on a year-ago basis to reach around 2.5 per cent in Q2 and Q3 2014," the central bank said. Its review discusses in detail the various assumptions and forecasts used to determine monetary policy.
MAS earlier this month said it would continue to allow a modest and gradual appreciation of the Singapore dollar as core inflation was likely to appreciate, sending the local currency higher against its US counterpart.
Singapore, more densely populated than rival Asian business centre Hong Kong, has been making it harder for firms to bring in lower- and mid-skilled workers from abroad due to a backlash from citizens concerned about competition for jobs and overcrowding.
The city-state's consumer prices in September rose 1.6 per cent from a year earlier, below forecasts, but the central bank warned that the pass-through of domestic costs to prices could intensify in coming months.
MAS said it expects core inflation to quicken to 2-3 per cent in 2014 from between 1.5 and 2 per cent this year, reiterating a forecast it made when it issued its monetary policy statement.
Headline inflation was expected to come in at 2-3 per cent in 2014 from 2.5 to 3 per cent this year, the central bank said, adding that services inflation was seen picking up from 2.4 per cent in the first half of 2013 to around 3 per cent in the second half of this year and 2014.
The MAS' core inflation measure excludes housing rents and car prices as these are more influenced by government policy.
WAGES, ECONOMIC GROWTH
MAS said resident wage growth accelerated to 4.5 per cent year-on-year in the first half of 2013 from 2.3 per cent for the whole of last year.
"Effective wage pressures are possibly slightly stronger than that implied by the headline wage growth, given the rising prevalence of part-time employment and hence the trend decline in the number of hours worked by residents," it said.
MAS added that hiring was expected to rise across a wider range of sectors over the next few quarters as the developed economies recover, in contrast to the recent period when jobs were mainly created in the domestic-oriented industries.
It also said the Singapore economy was gradually regaining momentum, and that growth for 2014 should not be significantly different from this year's projected expansion of 2.5 to 3.5 per cent, as a recovery in the developed economies offsets the slowdown seen in parts of Asia.
"Singapore's reliance on the domestic demand of its emerging market neighbours, namely the ASEAN-4, China and India, rose considerably through the 2000s and accounted for 14 per cent of its GDP in 2009. Nonetheless, Singapore remained more tied to domestic demand in the advance economies, with its exposure to the G3 totalling 24 per cent of GDP," the central bank said.