What is inflation?
Simply put, inflation is the rate where prices rise for goods and services, which gradually leads to the decline in purchasing power as a unit of currency now buys less than it was able to previously.
For instance, $2 in the 90s would most likely nab you any main dish of your choosing at coffee shops, from the nation’s beloved chicken rice to bak chor mee; or a few cups of coffee at a mere 40c each. In 2022, you would be hard pressed for options to fill your belly with just $2, with drinks alone costing more than this amount more often than not.
As of now, we are sure many Singaporeans have already experienced and felt the impact of rising costs due to the much dreaded word of the year, inflation. In fact, core inflation in Singapore climbed to a 14-year high back just 3 months ago back in September, at 5.3%. The previous record was at 5.5% back in November 2008.
Core inflation reflects foods, services and other goods but excludes costs such as private transport and accommodation, which helps show a more accurate representation of expenses by Singaporean households. While it has eased for the first time in 8 months with 5.1% in October, experts’ expectations for core inflation for the remaining time in 2022 and first half of 2023 is at an elevated level of 5%.
Concerns over rising inflation in Singapore
The economy most definitely took a hit when the pandemic strikes back in 2020, causing massive global economic disruptions. Since then, recovery has been slow but steady as we all learnt to live with a new normal alongside stimulus measures by the government.
With that said, news of steadily climbing inflation rates due to factors such as the disruption of supply chain due to overseas conflicts such as the war in Ukraine alongside the impact of COVID-19, and US federal funds rate hike are a new cause for concern as we begin to see the rise in prices in our everyday lives, particularly in food and energy costs. Other larger impacts include the rise of prices in public transportation and owning vehicles, as well as housing.
While Singapore is working to secure our own food and energy supplies, it unfortunately does not discount the impact external factors such as the above from affecting us since we are ultimately still importing a majority of our essentials.
What are some of the ways the Singapore government helps in tackling inflation?
To combat some of the concerns Singaporeans are facing due to the recent increase in prices after years of relative stability, a comprehensive set of measures have been rolled out steadily since the beginning of 2022.
Some of these measures might sound familiar to you, as they include the new $1.5 billion Support Package recently announced in October, alongside earlier rounds of support measures back in February and June 2022. These help provide further relief from day to day living costs for all households, with emphasis on support for lower- to middle-income groups.
To add-on to the above, in a bid to cushion the impact of the imminent GST rate increase for all Singaporeans, $1.4 billion will also be topped up to the Assurance Package (AP) to help offset additional GST expenses for at least five years.
Ways to help cope with inflation
With inflation seemingly here to stay, here are some good habits you should consider developing now to start combating inflation.
Seemingly a no-brainer, this can be harder to achieve than you might think! This year saw a double digit increase in spending across all expense categories. Mr Irvin Seah, senior economist, DBS Group Research remarked “In general, people spent more on transport (60.2 per cent), shopping, entertainment and travel (56.7 per cent), and food (38.7 per cent) over the past year.”
Some contributing factors include inflation, as well as the easing of COVID measures, which enabled many to spend on shopping, entertainment and travel, which they were not able to when COVID was at its most dangerous period. To combat this, try and acknowledge which purchases are ‘wants’, and which purchases are ‘needs’.
This is especially important when it comes to big ticket items as those drain your bank account way faster. If your phone is still working well, maybe think twice before investing in an iPhone 14. Of course, while small spendings seem insignificant, they do add up quickly overtime especially with frequent spending.
As our expenditure goes up, it is crucial that we turn to other alternatives that offer the same quality at a lower price. Some simple examples include turning to housebrand alternatives at supermarkets, thrifting instead of buying new, buying non-perishables in bulk, or even taking note of special discounts or cashbacks whenever possible. A little goes a long way.
Other than looking for investment policies with high interest returns, another great investment you could consider includes investing in a property. Property prices tend to increase in value overtime - since housing is something everyone needs, it is not a bad idea to invest in real estate. Of course, do keep in mind that it takes years before you are able to reap benefits, and while chances are high for your property to increase in value, it is not guaranteed.
How does inflation affect homeowners?
The most straightforward way inflation can affect homeowners is the fact that property prices generally rise with the inflation rate. When supply is low and demand is high, homeowners can then take advantage of the situation to up their asking prices, and in most times receive offers equivalent to or even above said asking price.
This makes it a prime time to sell your property, but can make purchasing properties much tougher.
Other than the earlier advantage, homeowners have to take note with elevated inflation comes rising interest rates. Alongside financial stress faced from the increase in daily necessities costs, homeowners may find themselves facing difficulties in servicing their mortgage loans. This is when prudent financial planning will help in allocating income towards various household costs.
Future homeowners will be happy to know of affordable public housing which can help combat some effects of inflation for properties. To ensure each and every citizen is given a chance to own their home, the government prices new HDB flats with significant subsidies and provides significant grants for first-timer homebuyers, with up to $80,000 for new flats and up to $160,000 for resale flats.
Effects of inflation on en bloc and new launches
While we may think inflation discourages developers from en blocs and new launches, the recent sale of the upcoming Marine South site might surprise us all. The launch of this very first site located in the Marina South precinct may see close to 5 bids coming in at $1 billion or more from analysts expectations.
This is one of the most attractive plots in the Government Land Sales (GLS) programme, kickstarting the development of the Marina South precinct. As this is the very first tender amongst 4 other similar sites in the area, developers may also adopt the wait-and-see tactic before making a move.
Despite factors such as the large land size, daunting amount of units to be developed and sold within five years from acquiring this project, the unique potential of this site is set to garner lots of attention from developers as they continue to purchase land for new launches to cater to the demand for properties.
As we carefully navigate these new changes in the form of rising costs from basic necessities to big ticket items, lots of prudent planning and care is needed to ensure we do not end up getting burnt.