Singapore's monetary policy may stay tight as inflation picks up for fourth month

Photo illustration of Singapore one dollar coin.

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A Singapore one dollar coin rests on top of Singapore two dollar notes in this April 13, 2010 photo illustration. REUTERS/Tim Chong/Files

By Kevin Lim

SINGAPORE (Reuters) - Singapore's inflation quickened for a fourth consecutive month in August as the labour market remained tight, reinforcing the widespread view the central bank will keep a tightening bias on monetary policy at its next review in October.

The city-state has been grappling with high inflation over the past two years amid a surge in rents and car prices, even as growth has slowed due to weak demand for its key tech exports.

The Monetary Authority of Singapore (MAS) is also bracing for more volatility in the Singapore dollar as investors pull funds from emerging markets in anticipation that the U.S. Federal Reserve will soon begin rolling back its stimulus measures.

The consumer price index (CPI) in August rose 2.0 percent from a year earlier, the Ministry of Trade and Industry (MTI) said on Monday, picking up from July's increase of 1.9 percent and in line with economists' median estimate of 2.0 percent in a Reuters poll.

Core inflation, which excludes car and housing costs because they are more influenced by government policies, was at 1.8 percent in August from a year earlier, higher than the median estimate of 1.6 percent.

"The headline came within expectations but core inflation is a bit faster than expected. Given the tight labour market, the data reinforces our expectation that MAS will be on hold when it issues its monetary policy statement in October," said Barclays economist Joey Chew.

Singapore's current monetary policy is to allow a modest and gradual appreciation of the local dollar against an undisclosed basket of currencies -- a stance it has maintained with minimal tweaks over the past three years.

MTI and MAS said in a joint statement that domestic cost pressures were expected to persist amid continuing tightness in the labour market, and pass-through from accumulated cost increases to prices of consumer services could pick up slightly.

For a graphic on Singapore inflation, GDP, non-oil exports:

Inflation dropped to a three-year low of 1.5 percent in April after the central bank introduced tight restrictions on motor vehicle loans, sending car prices tumbling. But prices for certificates of entitlements (COEs), which are required for new car purchases, have soared since.

Singapore has been experiencing higher-than-normal inflation in recent years due in part to government measures to slow the inflow of cheap foreign workers into the city-state.

The affordability of housing and the overall cost of living are major concerns among Singaporeans, who are unhappy about the number of foreign workers in the small country of 5.3 million people.

On Monday, the government announced rules that will force many companies to consider Singaporeans for skilled job vacancies before turning to candidates from abroad.

(Additional reporting by Cheon Jongwoo; Editing by Jacqueline Wong)

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