Inflation in Singapore and How to Cope with It
The annual inflation rate of Singapore exceeded 7% in August and September 2022, which marked the greatest rate of increase in consumer prices since mid-2008. To put that in perspective, over the past decade, the average annual headline inflation rate and average annual core inflation rate were 1.05% and 1.25%, respectively. [1]
What Does Inflation Mean for the Average Singaporean?
The effects of these record levels of inflation have led to the average Singaporean experiencing a sharp increase in their day-to-day spending. Data from the Department of Statistics showed that food items saw the largest increase in prices at about 6.4% in August, while costs for accommodation and clothing rose by 6.0% and 8.7%, respectively. [1]
Percent Change in CPI Over Corresponding Period of Previous Year Data Source: Department of Statistics Singapore
A large part of the increased levels of inflation that we are facing can be attributed to supply chain inefficiencies around the world, which is exacerbated by heightened political tensions between major economies.
Inflation is Expected to Stay in Singapore
As these challenges are expected to stay, the Singaporean government is expecting inflation to stay relatively high for the next couple of months. In this article, you will learn about how inflation is measured, how inflation affects the economy, and how you can not only cope but thrive during elevated levels of inflation.
How is Inflation Measured in Singapore?
Inflation refers to the increase in the average price of all the items that you may expect to buy.
Consumer Price Index (CPI)
A common way to measure inflation in Singapore is to use the Consumer Price Index (CPI). The CPI measures the costs of a fixed collection of goods and services commonly consumed by the average citizen, with a total of ten broad categories of goods and services being tracked.
Core Inflation vs. CPI All-Items Inflation: Department of Statistics Singapore
Core Inflation
Core inflation is another similar and popular measure of inflation. However, it excludes the costs of private transport and accommodation, as this provides a more accurate representation of the day-to-day expenses of the average Singaporean household.
Generally, core inflation is expected to grow slower than the CPI-All Items inflation. For 2022, the Monetary Authority of Singapore expects the CPI-All Items inflation to reach an average of 5-6%, while the MAS Core Inflation is projected to settle at around 3-4 %.[2]
What Causes Inflation?
Fundamentally, inflation can be attributed to both supply and demand factors. At first, supply-side shocks will lead to an increase in both prices and inflation as consumers bid up prices on a smaller supply of goods and services. On the other hand, heightened inflation can also be caused by aggregate demand rising faster than aggregate supply.
Following the easing of Covid-19 restrictions across the world, pent-up demand led to increased inflation globally as businesses struggled to accommodate the spike in demand for goods and services. Furthermore, Singapore’s open economy results in stronger demand pressures from our trade partners.
Increased Money Supply
Generous stimulus plans around the world that were executed during Covid-19 also led to a sharp increase in the money supply, which led to a larger amount of money being used to bid up prices for goods. The overall increase in global money supply played a significant role in the rising inflation rates, which is currently present in nearly every economy.[4]
How Does the Government Control Inflation?
The Singaporean government has a unique way of dealing with inflation. While most major economies adjust interest rates to respond to inflation, MAS uses an exchange rate policy designed to influence demand-side factors, which allows inflation to return to moderate levels.[5]
Strengthening the Singapore Dollar
The appreciation of the Singapore dollar will result in our trading partners having to pay larger increased prices for our exports, which is expected to lead to an overall reduction of aggregate demand in the short run. As a result, general price levels can be expected to increase less quickly, resulting in lower rates of inflation.[6]
The Effect of Inflation on Asset Prices
In the face of heightened inflation across the world, governments can be expected to take a more conservative monetary policy to reduce inflation rates. Hence, a general trend of increasing interest rates can be reasonably expected, which means that the amount of money flowing into higher-risk asset classes, such as equities, can be expected to decrease. In such situations, investors may perform much better if they choose to pursue wealth preservation strategies by investing in lower-risk financial products.
Bonds
Bonds such as the Singapore Savings Bonds are among the safer types of investments available, with an average return of about 3% per year.[3] While the returns on investment may not be as significant, these bonds are safe as they are fully backed by the Singapore Government. Furthermore, your investments will remain liquid as you can choose to exit your investment anytime without having to incur heavy penalties.
Safe Haven Equities
During periods of high inflation and a strong prospect of recession, investors generally flock to safe haven equities such as stocks in consumer staples and utility companies. This is because these companies are expected to be sufficiently robust against weaker business cycles.
Cash Management Funds
Cash management funds are another popular avenue for investing during periods of uncertainty as they focus on investing in lower-risk financial products, which makes them a relatively safe place to park your investments.
Wealth Preservation Through moomoo Cash Plus
To help investors fight inflation, moomoo has come up with the Cash Plus campaign, with a special offer that guarantees you the 5% p.a. (anualized percentage) rewards. With a minimum subscription of S$100 into moomoo Cash Plus, users will be invested into the underlying funds, and any yield differences between the fund and 5% p.a. will be provided by moomoo SG during the event period.
For more details, you can check out the moomoo Cash Plus page here.
Disclaimer:
#One month counts as 30 days and 3 months count as 90 days
^Management fee is charged by the fund company which are included in the NAV calculation
*Moomoo SG guarantees the 5% p.a. (anualized percentage) return rewards. With a max subscription of S$10,000 into 5% p.a. return reward, users will invest into a base money market fund of their choice and moomoo SG will make up for the difference to ensure that eligible users enjoy a guaranteed return of 5% p.a. on their principal subscription. With a max subscription of S$10,000, users will receive a total of S$ 123 after 3 months.
The calculation formula is: S$10000*[(5%/365)*90]= S$123. Per annum calculation based on 365 days, while months in 30 days.
Maximum subscription for the event is S$10000.
[1] https://www.singstat.gov.sg/whats-new/latest-news/cpi-highlights
[2] https://www.mas.gov.sg/news/monetary-policy-statements/2022/mas-monetary-policy-statement-14jul22
[3] https://www.mas.gov.sg/bonds-and-bills/investing-in-singapore-savings-bonds
[4] The link between Money Supply and Inflation - Economics Help
[6] Stronger Singapore dollar could help country's inflation: Barclays