Singapore inflation holds at 26-yr high

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Singapore's annual inflation held at a 26-year high in June, missing expectations for an acceleration and reducing pressure on the central bank to tighten monetary policy at a time when the global economy is slowing.

Annual inflation held at 7.5 per cent in June, reflecting a rise in housing and food costs. Economists in a Reuters poll had forecast inflation to have picked up to 8 per cent, which would have the highest level since February 1982 when inflation hit 9 per cent.

The data comes a day after the Asian Development Bank warned that central banks in emerging East Asia were moving too slowly to combat the threat of oil and food inflation and that timely action by policy makers was needed to maintain healthy growth -- otherwise the region risked a damaging upward spiral of wages and prices.

Economists said with inflation in Singapore expected to ease from July when the effect of last year's two-per centage-point hike in sales tax drops off, Singapore's central bank will have little impetus to tighten monetary policy after the economy shrank at it sharpest rate in five years in the second quarter.

"They will be too concerned about export growth to do anything more aggressive," said Robert Prior-Wandesforde, a HSBC economist.

"Exports are already suffering a fair bit and they will get worse from here since we are seeing a synchronised downturn in the US and Europe."

Central banks around the world are trying to find a way to curb rising prices without hurting growth at a time when the global economy is slowing.

Singapore's central bank steers monetary policy by managing the Singapore dollar within a secret trading band against a basket of currencies, rather than by adjusting interest rates.

It moved the centre of the band up in April, its most aggressive policy change since the 2003 SARS outbreak.

The Singapore dollar weakened to 1.3582 against the US dollar after the release of the data, compared to 1.3570 before.

Singapore's economy shrank an annualised 6.6 per cent in the second quarter after seasonal adjustments as exports to the United States and Europe tumbled.

Singapore's government expects 2008 inflation to be between 5-6 per cent, although economists expect the forecast to be raised since consumer prices averaged 7.1 per cent in the first half of the year.