Singapore’s inflation accelerated to an 18-month high as record economic growth in the first half of the year spurred demand for goods and services, sustaining pressure on the central bank to allow currency gains.

The consumer price index climbed 3.3% in August from a year earlier, Singapore’s Department of Statistics said in a statement today. That matched the median estimate of 10 economists surveyed by Bloomberg News. Prices rose 0.5% from July, without adjusting for seasonal factors.

Singapore’s economy expanded at a record 17.9% pace in the first six months of the year, as surging exports bolstered manufacturing and the opening of two casino-resorts boosted services. The government, which expects gross domestic product to grow 13% to 15% this year, has tightened lending rules to curb speculation after home prices surged 38% last quarter.

“The economy still has some significant juice left for the upcoming laps, and the Monetary Authority of Singapore need not pause just yet,” HSBC Holdings Plc economists led by Frederic Neumann said in an e-mailed note today. The central bank will likely “continue its tightening bias in mid-October” by allowing a gradual appreciation in the currency, without any one-off adjustment in the exchange rate, they said.

The MAS uses the currency instead of interest rates to manage inflation, which it forecasts will average between 2.5% and 3.5% this year. The central bank tightened policy in April, saying it would shift the Singapore dollar to a stronger range to trade in and allow a gradual appreciation. It next reviews monetary policy in October.

Monetary Policy
The Singapore dollar has gained 5.7% against its US counterpart this year.

The central bank said in its annual report in July that “economic activity is likely to be sustained at high levels” for the rest of 2010, adding pressure on business costs and spurring inflation.

Housing prices, the biggest component of the consumer price index, climbed 3.1% from a year earlier in August, and transport costs increased 9%. Food prices rose 1.7%, today’s report showed.

Still, inflation “has been in line with expectation and will most likely come in within MAS’s target range,” said Irvin Seah, an economist at DBS Group Holdings in Singapore. “Hence, the current exchange rate policy stance has been appropriate given the outlook on inflation.”