Singapore inflation rate 2022: What is it and why does it matter?

OK, confession time. Even though I know that Inflation is Very Bad and I should do all I can to stay ahead of it, I must confess I haven’t a clue what the Singapore inflation rate actually is. Well, until recently when it became plastered all over the news. 

The thing is, knowing the inflation rate, even if it’s just a ballpark figure, is crucial for all kinds of personal finance planning. Like knowing what counts as a good return on your investments, projecting how much money you’ll need to retire and even budgeting for the day-to-day stuff.

So in this article, I’m going to find out exactly what the Singapore inflation rate is, and what inflation really means.

What’s the meaning of inflation anyway?

First of all, what exactly is inflation? Most Singaporeans already have an intuitive grasp of the concept. Just look at how outraged we are when the price of kopi goes up from $1 to $1.20.

Technically, inflation covers more than that. It refers to the price increase of a standardised basket of goods i.e. not just food and drinks, but also housing, transport, healthcare, education and even recreation.

This is compiled by the Department of Statistics every month and is published officially as the Consumer Price Index, or CPI.

And no, they don’t just record the cheapest housebrand product at NTUC FairPrice. The total basket of goods comprises 6,800 brands/varieties of items, and prices are surveyed at 4,200 outlets across Singapore. 

The Consumer Price Index is published every month, and each month’s CPI benchmarked against the same statistic a year ago. For example, the CPI for June 2019 is measured against that of June 2018. 

The difference between this year’s and last year’s CPI = annual inflation rate in Singapore.

Seems simple enough, right? Well, there’s a bit more to this story. 

MAS actually looks more closely at what they call core inflation measure, which is a variant of the regular inflation rate, except minus accommodation costs (i.e. rental) and private transport costs (i.e. car). Since the majority of Singaporeans own their homes and take public transport, core inflation measure offers a better gauge.

What’s the official Singapore inflation rate for 2022?

Since the CPI is measured and published monthly, the annual Singapore inflation rate varies from month to month. 

Bear in mind that there’s a seasonal effects – for example, if there’s a drought in Australia, then some of the dairy and produce that make up the CPI will be a lot more expensive, making this month’s inflation rate disproportionately high.

Let’s look at all the recorded core inflation rates in 2021 and subsequently, the MAS inflation forecast for 2022. 

Source: MAS

Note: Inflation rates here are year-on-year rates. For example, Jan 2021’s inflation rate of 0.4 per cent means the CPI was 0.4 per cent more expensive compared to Jan 2020.

Note 2: If you’re an inflation nerd you can also check out the MAS’s inflation calculator for historical goods prices.

The rising inflation in Singapore…

The numbers don’t lie. In December 2021, Singapore’s headline inflation rose to 4 per cent, surpassing the expected projection of 3.7 per cent. The last time Singapore’s headline inflation crossed the 4 per cent mark was in February 2013.

Similarly, the core inflation rate in December 2021 stood at 2.1 per cent, the highest since July 2014. These figures were mainly driven up by the steep increases in air fares and Covid-19 testing costs under Singapore’s VTL schemes.  

[[nid:563796]]

Given these higher than expected inflation rates, MAS has adjusted their projected inflation rates for 2022. MAS Core Inflation is now projected to be 2–3per cent this year, from the 1–2 per cent expected in October. Meanwhile, headline inflation is expected to be 2.5–3.5 per cent, from the earlier forecast range of 1.5–2.5 per cent.

Now, we know the numbers. Let’s make sense of them. What does this mean for you, the average Joe and normal Nancy?

For a start, you can expect to be paying more for your goods and services on the day-to-day basis. If you visit the dentist for the first time in a year, you might be shocked at how much more expensive it might have become.

Which brings me to my next point…let’s take a look at inflation in the various categories to get a better understanding of its direct impact on your life. 

Which consumer goods inflate quicker than others?

The sneaky thing about inflation is that it’s really uneven, so what we experience in reality can feel more like an unconnected series of flukes, rather than the steady evaporation of our hard-earned money it actually is.

In 2012, Singapore’s (all-items) inflation rate hit a crazy-high 4.6 per cent, largely due to skyrocketing COE prices and an out-of-control property market. That’s a straightforward case of certain high-profile consumer goods affecting the inflation rate disproportionately.

Similarly, the (all-items) inflation rate reported in December 2021 was the result of a steep increase in air fares. Bearing in mind that Singapore is an import nation, the rising energy prices have a profound impact on our all-round expenses.

So, what other items can we expect to see a price hike in this year? 

Food: With regional supply disruptions and rising energy prices contributing to food inflation, expect food prices to increase even further in the coming year.

Utilities: Brace for your electricity and utilities bill in the upcoming months. With energy prices on the incline, your utilites and electricity will be directly impacted. If you haven’t already, don’t wait to switch to theOpen Electricity Market for savings.

Public transport: Not only do we have to bear with unacceptable amounts of body contact on over-packed MRTs as more people return to work, expect to pay higher fares for it too! Well, if its any consolation, car owners aren’t spared from the price hike. They, too, will be chalking up more in petrol fees.

Travel: Given that soaring air fares have contributed greatly to the increase of the overall inflation rates, this should come as little surprise. Post-pandemic travel is about to get even more expensive. The dismay!

How does the inflation rate affect all of us?

Just to reiterate, with the projected core inflation rate for 2022 at 2-3 per cent, you will certainly feel the pinch on the day-to-day when you the take public transport, dine out, travel and/or have children.

Some of the repercussions of inflation are immediate.

For example, whether you know it or not, every year that goes by without a decent wage increment will seriously hurt your spending power. Think about that for a second. Did YOUR income increase by at least 2 per cent since last year to keep pace with inflation? If you didn’t get a raise, you’re actually getting a pay cut.

What’s worse is that doing “sensible” things like cooking your own lunches and taking public transport everywhere might actually expose you to higher-than-average inflation. Ugh!

In fact, inflation can seriously impact our major life decisions. Think about the rising costs of feeding and educating kids, for example. Yikes — kind of dampens one’s enthusiasm for making babies, doesn’t it?

What can Singaporeans do to combat inflation then?

To circle back to the inflation rate and personal finance, I just want to emphasise that the official projected core inflation rate of 2-3 per cent is NOT the inflation rate you should be looking at when budgeting for yourself, because the CPI does not really reflect how a regular person spends money.

Instead of believing news articles about inflation at face value, take a look at the MAS reports and pay special attention to information that actually affect you, such as food and public transport.

In particular, keep a close eye on costs that you will almost certainly spend more on in the future, such as healthcare and education (if you have or plan to have kids).

[[nid:556100]]

While the projected figures are a cause for concern, fret not. It’s not all gloom and doom. With the easing of covid-19 measures, the labour market, and economy on the whole, is expected to recover. Wages are also expected to continue to rise. Phew!

On my end, I would make sure that my income is at least keeping pace with that. Ideally, it should surpass 3 per cent by leaps and bounds, because there will be a day when I can’t convince my boss to keep me on, even at negative inflation.

I’d also try to ensure that my savings and investments are not being completely eroded by inflation.

It’s not easy to find low-risk instruments that can beat 3 per cent. Parking my cash in a high-interest deposit account might come close but it’s not quite there. Heck, even the CPF OA interest rate is only 2.5 per cent.

I am seriously considering moving more money to my SA for a safer 4 per cent interest rate, and moving some of my savings into investments to even out that not-so-stellar-after-all savings account interest rate. 

This article was first published in MoneySmart.