INFLATION AND COST OF LIVING IN SINGAPORE

Abstract

This Academic Exercise is aimed at analysing the inflationary and cost of living trends in Singapore. The data used are mainly obtained from various issues of the Yearbook of Statistics, the Monthly Digest of Statistics, the Economic Survey of ·Singapore and the Consumer Price Index of Singapore (based on the Household Expenditure Survey). The findings from the analysis show that Singapore has been experiencing moderate inflation in the past 2 decades, with only a few periods of higher inflation. The inflationary pressure during these periods of high inflation were mostly imported as a result of world inflation. It is clear that the smallness and openness of the Singapore economy, and her much dependence on other economies, make her very sensitive to world economic changes. In the recent years, the source of inflation in Singapore has been domestic, rather than imported. This has been mainly the result of wage-push inflation. Since 1974., wages have been rising at a faster rate than productivity on average. The wage-push pressure has become especially significant in recent years. Inflation results in the misallocation of resources and disrupts economic_ planning. It increases production _costs and hence reduces the competitiveness of domestic products in world markets. It raises the cost of living with different intensities on the various income groups and redistributes income at the expense of fixed income groups. Also, It discourages savings and changes the spending habits of the population, which may be very unfavourable for the economy in the long run. Counter-inflationary measures have not been widely used in Singapore, because inflation has not been very serious. However, two main types of policies are identified for Singapore to curb inflation, namely exchange rate policies and wage policies. Directly related to inflation, is the cost of living. The gradual increase in the Consumer Price Index indicated that the cost of living in Singapore has risen over the years, especially in the prices of transport and communications and miscellaneous goods and services. Several problems and issues surfaced with the rising cost of living. First, it has become a significant problem for low-income families. Second, the problem of the "middle class squeeze" has evolved. However, closer examination of the problems reveals that rising cost of living is not a major problem. An econometric model for estimating the inflation rate was developed in this study. Using the model, the inflation rate for 1992 was estimated to be about 2.5 percent on average.