Why Singapore needs to be vigilant for possible inflation pickup

Monetary Authority of Singapore Managing Director Ravi Menon said policymakers need to be proactive in these times as stronger economic growth may lead to an inflation pickup.

Singapore inflation
A money changer displays currency notes in Singapore October 10, 2007. Reuters

There is a growing need for policymakers to be proactive while inflation is still treading below the historical average.

In an interview with the Business Times, Monetary Authority Authority Managing Director Ravi Menon said inflation will scale up at some point if the economy continues to strengthen.

"Our track record shows that we are keenly focused on inflation, keeping inflation under control. And as long as inflation remains benign, the current policy stance has been appropriate," he said.

The central bank chief noted that it would not take too much effort to be proactive, given Singapore's 40-year track record of keeping up with such economic changes.

To recall, MAS maintained its neutral currency stance in the face of muted inflation pressure. This is after moderating three times during the period from January 2015 to April 2016.

The central bank's policy decision released early October has led to speculations that it would tighten by seeking a modest appreciation in the exchange rate in 2018.

"The policy stance had been appropriate for an extended period because of the prolonged period of very weak inflation we have seen," Menon explained.

He furthered, "We are now seeing inflation picking up, but still quite below the normal historical average of about just under 2 percent. It will be hard to extrapolate from here how long more that extended period will be."

Additionally, Menon said inflation in most countries has been stuck in the doldrums, despite the pickup in growth. He stressed that this may be because the central banks are not seeing strong proof of the usual shift from faster economic growth to rising wages and then to inflation.

"Has it gone away entirely? I don't think so. Maybe it's delayed, maybe it's weaker, maybe it's going to take longer. So we just have to look at the data and see how the inflation picture evolves and act accordingly," he said.