Singapore inflation trends in the last five years and how it’s affecting livelihoods.
No country is immune to inflation be it categorise as developing or developing the country. Singapore is no exception, and in the recent past, it shows fluctuating trends in inflation. When this economic phenomenon occurs, it means that money loses value, buying less good or service. This reduces people’s purchasing power. To be precise inflation is measure by an increase in Consumer Price Index. These are more than 6500 varieties of goods and services commonly purchased by households.
CPI can be affecting by an increase in the cost of imported goods. Sometimes it’s caused by domestic cost procedures. Since the country independence 1963, Singapore has risen to be one of the prosperous countries with its per capita GDP close to those of leading European and western countries.
Drive behind Singapore economy
Singapore is rate as one of the thriving free-market economies. It’s attractive to investors due to its corruption-free environment, stable market prices and favourable tax from the government. The economy depends heavily on exports mainly consumer electronics and technology products. Its GDP per capita, currently $53,880 is among the best in the developed countries.
Between 2001 and 2003, Singapore was walloped by the global recession as a result of a slump in the technology sector and outbreak of Severe Acute Respiratory Syndrome which significantly reduced tourism and consumer spending due to fear of infection. From that experience, the government of Singapore started to invest in other industries which are less vulnerable to the global demand cycle for IT products. Some of the significant investors venturing into Singapore market include those in pharmaceuticals and medical technology production.
Primary cause of inflation in Singapore
Causes of inflation are not unique to any country. Let us, for example, look at the one of the primary cause of inflation, cost-push inflation. There is a myriad of reason why cost-push inflation occurs.
Rising labour cost
Rising wages weak mid productivity had propelled up labour cost in Singapore since 2011. Between 2011 and 2016, the overall until labour cost in the country grew at an annual rate of 2.7%. Productivity, however, has gone down at a rate of 0.3% a year. Typically, these means that a unit increase in cost per worker raises a unit labour cost while productivity deeps.
Labor cost now makes up the bulk total business cost both in manufacturing and service sector. Projections show that wages are expect to continue rising at a slower pace while productivity will remain moderate. Sometimes firms might decide to maintain the products cost but not in the long run. Wage inflation pushes the company to increase the cost of products to absorb the high wage expense so as not to reduce the profit margin.
Rising business cost
Businesses are facing increasing price in Singapore. According to data from the EDB’s Census of Manufacturing Activities, business costs in manufacturing in between the year 2004 and 2013 compounded by 5.37% annually. The figures were 4.9% for remuneration, 7.71% for operating cost and 4.815 for raw materials.
Rental cost for businesses in retail has increased by 12.6% and 20.7% in Fringe Area and Central area respectively in the last decade. In the office rental sector, local rents have experienced a 52.8% rise and prime office a 92.8% rise between 1998 and 2014. Much of the increase happened since 2005. In the industrial space, the mean monthly rental rate for warehouse rosy by 64.8% and multiple –user 92.9% between 2005 and 2013. Such skyrocketing rates compromise the development of an enabling environ raising the barrier to entry of new industries and favouring the incumbent industries. Reduction in competition results in inflation.
Increase in transport cost
The transport sector plays a vital role in a countries economy. Offset in the industry, increase in cost, and cause all industries depending on the industry to pass the burden to the consumer. Most of the increase in the transport sector is inducing by the rise in oil products price. In the recent past, Singapore has experience increase in transport cost due to increase in Certificate of Entitlement premiums. This comes after a low supply of new COE in the last quotas.
Rising property prices
Singapore has a population growth rate of 2.2%. Increase in population has a positive correlation with an increase in property prices. This growth rate is however projected to slow down as the government tightens laws on foreign workers who had previously brought in millions of foreigners pushing the population to 5 million.
However, population increase is not the primary drive in an increase in property prices. Between 1996 and 2000, property prices went down despite a rise of 2.3% of the population. Other factors such as monetary policies, internal and external economic conditions, bank lending curbs, government policies, monetary supplies and loan interest rates are the leading cause why property prices in Singapore are projected to double by 2030. Between 2015 and 2030, population growth is projected to grow at a rate of 1.5%. This is going to be the lowest since Singapore independence.
What the government is doing to mitigate domestic cost pressures
Housing is not part of CPI inflation. However, this is still a young concert family that is yet to own homes. The Ministry of National Development has planned to Build-to-order HDB flats to accommodate first-time buyers.
To curb the effects of the tight market, the government is working closely with unions and companies to raise productivity. This can be achieved by encouraging the companies to improve working condition and motivating workers to upgrade their skill sets. Such measures will help companies pay their workers better and also help them deal with high business cost instead of passing the burden to the consumer.
At the grassroots level, the government has set up measures to mitigate the siting cost of household goods. For instance, there is an introduction of GST Voucher Schemer which help the HDB household pay utility bills. This does not guarantee to reduce CPI, but it cushions the impact of the rising cost of living in households.
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