INFLATION continued to ease last month, but stayed higher than expected as the hikes in electricity rates kicked in.

The consumer price index rose 6.4 per cent in October over last year, down from the 6.7 per cent increase in September and comfortably below the peak of 7.5 per cent in the middle of the year.

Compared to September, inflation last month was 0.8 per cent higher.

The bulk of the increase in prices last month stemmed from the higher costs of housing. This was pushed up by still-high property values and the 21.4 per cent spike in electricity tariffs.

But apart from housing-related costs, lower price rises were seen across the board.

Food prices rose 7.8 per cent last month over the year before, down from an 8.2 per cent rise in September.

Transport costs actually fell 0.2 per cent from the previous year, reversing a 2.8 per cent increase in September, as petrol pump prices and COE prices dipped.

For the first 10 months of this year, inflation has rung in at 6.8 per cent, and looks on track to fall within the Government's forecast of 6 to 7 per cent for the whole year.

Next year, the Government is tipping a much lower inflation rate of 1 to 2 per cent, on the back of the worldwide recession.

Annual inflation in Singapore held at 7.5 per cent in April, May and June, but analysts say inflation has peaked, partly as the effects of a 2-percentage-point rise in sales tax last year faded from annual calculations.

The unfolding financial crisis, which threatens to push the global economy into a recession, as well as sliding commodity prices, will also tame inflation.

The government said on Friday inflation will moderate sharply in 2009 to 1-2 per cent, below a previous forecast of 2.5 to 3.5 percent.

Transport and Communication costs - which includes gasoline - fell 0.2 percent in October from a year earlier while housing prices jumped 16.4 percent.

Oil futures fell to a three-year low last week, down almost two-thirds from just four months ago to about US$150 a barrel.

Prices of transport and communication, which account for 22 per cent of the index, fell 0.6 per cent while housing prices, which make up 21 per cent of the index, gained 4.3 per cent.