HSBC economist tips inflation at 6% this year

May 14, 2008

HSBC economist tips inflation at 6% this year

By Alvin Foo

INFLATION is set to peak in the coming months before falling to 4 per cent by the end of the year, said HSBC Bank economist Robert Prior-Wandesforde yesterday.

However, he expects overall inflation for the year to average 6 per cent because of higher oil and food prices.

The Monetary Authority of Singapore anticipates inflation this year to be in the upper half of the 4.5 per cent to 5.5 per cent range.

Inflation in March hit a 26-year high of 6.7 per cent.

Mr Prior-Wandesforde, who was speaking on the economic outlook for Singapore, said: 'We think the central bank will need to raise its inflation projection...the size of the oil and food shocks has taken everyone by surprise.'

Oil hit a record high of nearly US$126 a barrel last week, and food prices have shot up recently due to supply shocks and rising demand.

Mr Prior-Wandesforde expects inflation in Singapore to reach a high of just over 7 per cent by next month, with electricity and petrol prices likely to go up.

But it should fall back to about 4 per cent by year end due to the dissipation of the effect of last year's goods and services tax hike, and hit 3.5 per cent by the middle of next year.

DBS Bank economist Irvin Seah said of HSBC's forecast: 'Six per cent's possible if food and fuel prices continue to creep upwards.'

He tips inflation to be 5 per cent this year.

Mr Prior-Wandesforde expects gross domestic product to grow by 6 per cent this year - at the upper end of the Government's forecast range of 4 per cent to 6 per cent.

'It will slow down gradually this year,' he noted. 'Some cooling in the Singapore economy is to be welcomed, because the economy was growing a little too fast, resulting in cost and price pressures.'

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