Singapore should allow inflation to rise temporarily, though price pressures are expected to remain under pressure, in order to accommodate the increase in relative prices of labor-intensive products, the International Monetary Fund said in a report published late Monday.
"Inflation should be permitted to rise temporarily to accommodate the increase in relative prices of labor-intensive products resulting from the tighter labor market conditions," the Fund said.
At the same time, other sources of inflation, including transport costs, credit growth and asset prices, should be forcefully tackled, to prevent inflation expectations from rising.
This shall be done through continued recourse to macroprudential tools or by further absorbing liquidity, the IMF report noted. Inflation is forecast to remain under pressure from the tight labor market and lagged effects of higher prices for vehicle permits and real estate on consumer prices.
IMF pointed out that Singapore has ample policy space and large buffers to mitigate the effects a steeper global growth slowdown or financial turmoil.
The GDP growth is expected to weaken in 2012 and seen expanding only moderately in 2013. External downside risks loom large for the economy, the report warned.
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