Monetary Authority of Singapore Annual Report 2011/2012
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Commodity Price Spikes Drove Global Inflation Higher

Global inflation picked up over the first three quarters of 2011, as oil prices spiked during the MENA crisis, and food prices climbed due to adverse weather conditions. In the G3, headline inflation rose from 1.8% yoy in Q1 to 2.7% in Q3, mainly reflecting the strong run up in energy prices. Core inflation in the US strengthened as well, alongside a moderate pickup in economic activity. In contrast, underlying inflationary pressures remained restrained in the Euro zone and Japan given the considerable slack in these economies. In Asia ex-Japan, price pressures intensified further, driven by higher food and commodity prices, as well as tight labour markets. Regional inflation peaked at 6% in Q3, almost twice the quarterly average seen over the past ten years.

Towards the end of the year, however, headline inflation rates began to moderate as energy and food costs stabilised. Although news of the Iranian embargo caused energy prices to escalate again in February 2012, the impact was relatively short-lived. Nevertheless, with most countries in Asia ex-Japan operating at or close to their potential output levels, core inflation has remained relatively sticky in the region.