SINGAPORE (REUTERS) - Singapore's inflation probably eased to a near three-year low in April as government measures to rein in car prices took effect, giving authorities more flexibility to deal with an economy that is struggling to grow.
According to the consensus estimate of economists polled by Reuters, the city-state's consumer price index (CPI) likely rose by 3.1 per cent last month from a year ago, the smallest gain since prices rose by the same quantum in July 2010.
But April industrial production only edged higher from a year ago, hurt by continued weakness in the European Union, which is Singapore's largest export market.
"The inflation picture has turned out more benign than expected while growth for the US and Asia has been more sluggish," said Mr Sim Moh Siong, a foreign exchange strategist at Bank of Singapore, the private banking arm of Oversea-Chinese Banking Corp.
The Singapore dollar, he added, is now trading around the midpoint of its estimated currency band, after having been near the top of the band in recent months as some investors unwind bets that the city-state could be forced to tighten monetary policy further.
Singapore government and central bank officials will hold a briefing on Thursday morning along with detailed estimates about the economy's performance during the first quarter, where they may talk about the outlook for the city-state.
Detailed economic data for Singapore for the first three months of 2013 are likely to show gross domestic product (GDP) shrank by 0.5 per cent from a year ago, slightly less than the advance estimate of a 0.6 per cent contraction as services expanded more than earlier expected. The numbers will be released early in the morning.
April inflation and industrial production data will be released in the early afternoon.
Singapore has been suffering elevated inflation over the past two-and-half years, due in part to rising rents as well as government measures to slow the growth in its car population.
Inflation averaged 4.6 per cent last year, below 2011's 5.2 per cent but well above the around 2 per cent levels seen in preceding years.
The Monetary Authority of Singapore (MAS) last month said it expects headline inflation of 3-4 per cent for the whole of 2013, and that monthly inflation could average below 3 per cent year-on-year for the remainder of 2013 if the cost of vehicle certificates of entitlement (COE) stay at current levels.
Singapore controls the number of cars on its roads by requiring motorists to get a COE before buying a new car.
Despite the expected slowdown in inflation, economists expect the central bank to keep its stance of allowing a modest and gradual appreciation of the Singapore dollar against a basket of currencies to guard against pressures posed by the tight labour market.
"They have signalled in the past that the hurdle for (monetary policy) easing is pretty high," said Bank of Singapore's Mr Sim.
In a speech to economists and other academic researchers on Tuesday night, MAS Managing Director Ravi Menon said Singapore will face slower economic growth and higher inflation over the next decade as workers become scare and companies adopt new labour saving technologies or shift to other activities.
Singapore, he said, is heading towards a "demographic cliff" due to the effects of low birth rates over the past two decades and moves to tighten entry of foreigners who now account for more than one-third of the workforce if maids are included.
"Managing inflation expectations and preventing inflation from escalating will be the key challenge facing monetary policy during the transition to a productivity-based economy," he said.
MAS, in its half yearly macroeconomic review published last month, warned that core inflation will likely edge higher in the second half of the year amid a tight labour market.
Singapore's core inflation measure excludes accommodation and private road transport costs which are determined primarily by government policy.