"Last year, inflation was about two percent. This year, it could be five per cent, maybe even more," the Business Times quoted Prime Minister Lee Hsien Loong as telling a Lunar New Year gathering.

Lee was speaking in the lead-up to the national budget, which is to be delivered on February 15.

The newspaper quoted him as saying rising prices are a global phenomenon caused by factors including increased demand, disease and adverse weather.

He said that while the budget will offer something for the poor and elderly, "We cannot just distribute money and make the problem go away."

Lee was quoted as urging a diversification of the city-state's food sources, almost all of which are imported. He also said people should buy cheaper "house brands", according to the report.

Inflationary pressures began picking up in Singapore last year, with rents and wages increasing amid buoyant domestic economic conditions and rising global oil and food prices.

Faced with a slowing US economy, a key market for Singapore exports, the city-state's trade-reliant economy is expected to grow at a slower pace this year after expanding 7.5 percent in 2007.

The government has forecast 4.5-6.5 growth for percent this year.

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