Inflation forecast at 4.2% for 2011: DBS

The January inflation reading has raised the underlying trajectory for DBS' inflation forecast, up from 3.2 percent.

According to DBS, a one-off revaluation appears to be on the cards. It is the preferred approach for tackling transient inflationary pressure, compared to further steepening the Sing NEER policy band, which is more suited for tackling medium term inflation.

More importantly, both domestic and external inflationary pressures are expected to remain high within the first half of the year. But the base effect and earlier monetary tightening by regional central banks since third quarter of last year should start to kick in from the second half of the year onwards. That should see inflation easing off gradually. With this scenario in mind, we have raised our full year inflation forecast to 4.2%, up from 3.2% previously.