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By Kevin Lim
SINGAPORE, Oct 23 (Reuters) - Singapore's inflation quickened in September as car prices and rents soared from a year ago, increasing the pressure on the government for a more aggressive stance including further measures to cool the property market.
The city-state's consumer price index rose 4.7 percent in September from a year ago, up from August's 3.9 percent increase. Economists polled by Reuters had expected a reading of 4.2 percent.
Private road transport was the biggest contributor to September inflation, gaining 10.8 percent year-on-year following a 6.3 percent increase in August, but economists noted price pressures building up in other areas.
"Looking across the spectrum we're starting to see persistent price increases in services cost, namely healthcare. It shows there's an underlying force, an upward bias led by wages, which is impacting more of the services component," said Barclays regional economist Leong Wai Ho.
Francis Tan, an economist at United Overseas Bank, said the government will have to introduce measures to complement steps taken by the central bank, as Singapore's use of an appreciating currency to manage monetary policy is of limited value against domestic price pressures.
"The recent October policy is not going to be of much help. It's not imported inflation that we are looking at right now but cars and rents. The tight labour market and wage pressures are going to raise business costs and trickle to expected inflation," he added.
The Monetary Authority of Singapore earlier this month defied forecasts by keeping monetary policy tight and allowing the local dollar to appreciate at its current pace, bucking the regional trend as it warned of persistent inflationary pressures in a slowing economy.
But while the stronger currency has helped keep a lid on prices of imports, domestic pressures within Singapore have continued to keep inflation well above historic levels.
Inflation averaged 5.2 percent last year, above the official forecast of around 5 percent and the 30-year average of 2.2 percent.
The monetary authority now expects inflation to slightly exceed its most recent forecast of 4.0 to 4.5 percent for 2012, which is much higher than the 2.5 to 3.5 percent outlook it gave at the start of the year.
The Singapore dollar rose slightly to around 1.2203 against the dollar from 1.2212 before the inflation data.
Malaysia last week reported annual inflation of 1.3 percent in September, the lowest in two years, while Indonesia's year-on-year inflation dipped to 4.31 percent in September from 4.58 percent in August.
MONETARY POLICY, CARS
Singapore car prices have soared over the past year mainly due to government measures to control the number of cars in the city-state via certificates of entitlement (COEs) that motorists need before buying a new car.
Due to a jump in COE prices, the asking price for a new Toyota Vios is around S$120,000, up from around S$74,000 at the start of the year, according to prices tracked by motoring website sgcarmart.com.
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Tim Condon of ING Financial Markets said Singapore's inability to keep inflation is check is partly due to its exchange rate policy that ties short-term interest rates to U.S. rates. The city-state
"You've got conditions that short-term interest rates will remain zero for an extended period. That is stoking expectation of property price inflation, which then feeds into consumer price index expectations," he said.