Navigating the Storm: Understanding and Beating Inflation in Singapore 2023

Worried about rising prices of goods and services in Singapore and how it is affecting your general cost of living? 

Add to that the increase in GST from 7% to 8% in January, 2023 along with the planned increase to 9% in January, 2024 and they are all just rubbing salt in the wound. 

They say, understanding the problem is the first step towards the solution of that problem. So, here, we will talk about how international market trends and domestic monetary policy are affecting the CPI (Consumer Price index), thereby skyrocketing the inflation and putting a hole in your pocket. 

Inflation is an economic force that affects a nation with all its residents. It decreases the purchasing power of money over time thereby, making goods and services more expensive. Singapore, albeit its economic stability, is not immune to inflation's effects. In recent times, the city-state has witnessed fluctuations in its inflation rate, prompting concern among both consumers and policymakers. 

Considering how the recent trend in inflation rates Singapore is affecting your purchasing power negatively, we will also talk about the latest inflation trends in Singapore and how individuals can protect their finances by beating inflation.

Understanding Inflation in Singapore

To understand the current state of inflation in Singapore, we must first understand the factors that affect it. Singapore inflation is calculated with the help of Consumer Price Index Singapore (CPI). CPI reflects the average change in prices for a basket of goods and services. The Monetary Authority of Singapore (MAS) is responsible for monetary policy and managing inflation.

Now, let's talk numbers. From 1991 to 2021, in 30 years, the average CPI inflation rate Singapore was just about 1.52%, while in August, 2023, according to a report by MAS, the rate of YOY CPI inflation stood at 4%. If you can’t understand what that means, let us simplify things a bit more. 

If we follow the Singapore historical inflation rate, from 1991 to 2021, average prices of prepared food rose to 4 times its initial price. Whatever used to cost $1 in 1991, cost $4 in 2021, that too after average inflation of 1.52% over 30 years. Now, with a recent inflation rate of 4% in August 2023 (Source: MAS), prices are skyrocketing. 

What Is the Inflation Rate 2023 in Singapore, and How Does It Affect You?

The Monetary Authority of Singapore (MAS) measures inflation following two separate standards. The CPI inflation takes into account all items including accommodation, public and private transport, food, electricity etc. On the other hand, MAS core inflation doesn’t consider accommodation and public transport as parameters while calculating inflation. 

To get an idea about the current inflation rate Singapore, we can look into the following table:

Items	YOY inflation rate(August 2023)
All items	4%
MAS Core	3.4%
Foods	4.8%
Services	3.1%
Retail & other goods	2%
Electricity & Gas	-1.4%
Private transport	6.3%
Accommodation	4.4%

MAS has published the inflation data for the period August 2023. And we can see the month-wise YOY inflation data and Singapore inflation history in the following chart.

If we take the case of particular parameters i.e indicators of inflation, we can clearly see the trends on a year on year basis. 

Source: MAS

The prices of most things continued to rise albeit at a lesser rate than the previous couple of years. While during and immediately after COVID-19 outbreak, global supply chains were disrupted resulting in steep inflation rates, the marginal decrease in the rate of inflation this year can be attributed to easing of global supply chain restrictions.

While electricity prices have continued to fall, the prices of foods and other commodities are gradually increasing. If your income has not grown at this rate, you are losing more and more money everyday on food, accommodation and other essential commodities.

These can affect you in several ways.

• Reduced Purchasing Power: As prices rise, the purchasing power of money decreases. Consumers can afford less with the same amount of money.

• Income Erosion: Fixed-income earners, such as retirees or those on salary, may find it increasingly challenging to maintain their standard of living as their incomes remain stagnant while prices rise.

• Uncertainty: Inflation introduces uncertainty into financial planning, making it difficult for individuals to predict future expenses and save effectively.

Causes of Inflation

To understand inflation, we need to understand the causes of inflation first. There can be inflation due to many factors. They are usually categorised as below:

1. Demand-Pull Inflation:

   Demand-pull inflation takes place when demand for goods and services exceeds their supply. It's often associated with strong economic growth, increased consumer spending, or government stimulus measures.

2. Cost-Push Inflation:

   Cost-push inflation results from an increase in production costs, such as rising raw material prices, wages, or energy costs. Companies often pass these higher costs on to consumers in the form of higher prices.

3. Built-In Inflation:

   This is also known as wage-price inflation. When workers demand higher wages, leading businesses to raise prices to cover increased labour costs. This increase in the cost of products is due to Built-in Inflation.

4. Imported Inflation:

   Singapore is a highly trade-dependent nation. Inflation can be there due to increased prices for imported goods and services. Exchange rate fluctuations are also responsible for determining the cost of imports. Inflation resulting from these is called Imported Inflation.

Beating Inflation in Singapore

Now that we've seen the latest trends and understood the causes and impacts of inflation in Singapore, let's find out the strategies of beating inflation and protecting your financial stability.

Invest Wisely

One of the most effective ways to beat inflation is to invest your money wisely. While traditional savings accounts offer safety, they often fail to keep pace with inflation, resulting in a loss of real purchasing power. Instead, consider the following investment options:

• Stocks: Investing in equities can provide returns that outpace inflation over the long term. Singapore has a well-regulated stock market, and investors can choose from a range of sectors and companies.

• Bonds: Government and corporate bonds can provide a reliable source of income and preserve capital. Be sure to diversify your bond portfolio to mitigate risk.

• Real Estate: Property investments, such as real estate investment trusts (REITs), can offer rental income and potential for capital appreciation.

Diversify Your Investments

By diversifying your investments across different asset classes and industries, you can reduce the risk associated with any one investment. Diversification helps protect your portfolio against market fluctuations and inflation.

Focus on Long-Term Investments

Inflation is a long-term concern, so your investment strategy should also be long-term. Avoid making impulsive decisions based on short-term market fluctuations. Instead, maintain a disciplined approach and stay invested for the long haul. Over time, your investments are more likely to outpace inflation and deliver meaningful returns.

Increase Your Income

To combat inflation effectively, consider ways to increase your income:

• Negotiate a pay raise: With current market conditions, it's imperative that you get a pay raise periodically to negate the effects of inflation on living standards and savings. With the current manpower crunch across industries, if you are doing things right and your work is aligned with the criteria for pay raise, you should ask your employer for a pay raise. After all, if the increment in your salary is below the Singapore Core inflation rate, you are practically getting a pay cut.

• Invest in Skills: Continuous learning and skill development can lead to career advancement and higher earning potential.

• Passive Income: Invest in income-generating assets like rental properties, dividend stocks, or bonds.

Budget Wisely

A well-planned budget can help you manage the impact of inflation on your daily expenses. Here are some budgeting tips:

• Track Expenses: Monitor your spending to identify areas where you can cut back or make more cost-effective choices.

• Emergency Fund: Maintain an emergency fund to cover unexpected expenses, reducing the need to rely on credit in times of inflation.

• Prioritise Savings: Allocate a portion of your income to savings and investments before covering discretionary spending.

Consider Inflation-Linked Investments

In Singapore, there are government-issued bonds known as inflation-linked bonds. These bonds adjust their interest payments and principal value in line with inflation. Investing in such instruments can help protect your capital from the erosive effects of inflation.

Review Your Investment Portfolio Regularly

Market conditions and personal financial goals change over time. Therefore, it's important to periodically review your investment portfolio. Rebalance it as needed to ensure it aligns with your risk tolerance and financial objectives. This might involve selling over performing assets and reinvesting in underperforming ones.

Seek Professional Advice

If you're unsure about the best investment strategy to beat inflation, consider consulting with a financial advisor. Head over to TallRock Capital for designing your financial future and to design your financial future now!

Source:

https://www.mas.gov.sg/-/media/mas-media-library/news/consumer-price-developments/2023/inflation202308.pdf

https://www.reuters.com/markets/asia/economists-cut-singapore-2023-growth-inflation-forecasts-survey-2023-09-06/