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.
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, or projecting how much money you’ll need to retire.
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 6,600 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 tracks their expenses better.
What’s the official Singapore inflation rate for 2019?
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 effect in some cases — 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.
What we can do, though, is look at all the recorded inflation rates available for 2019 and take an average reading.
|Month||Singapore inflation rate (all items in CPI)||Core inflation measure (not counting rent / cars)|
|Average for 2019||0.63%||1.4%|
Note: Inflation rates here are year-on-year rates. For example, Jan 2019’s inflation rate of 0.4% means the CPI was 0.4% more expensive compared to Jan 2018.
Note 2: If you’re an inflation nerd you can also check out the MAS’s inflation calculator for historical goods prices.
Singapore inflation got so low meh? Doesn’t feel like it…
Even though I know that numbers don’t lie, I have a really hard time believing that Singapore’s core inflation rate for 2019 is only 1.4%. (Even more unbelievable is the rate for “all items” inflation — only 0.63%!)
In fact, most people I’ve talked to believe that inflation is more like 3%. Look, there’s even an SMU study of inflation perceptions which shows most people’s estimates hover around the 3% mark.
So why is the “actual” number so low!?
For a start, it could be due to cognitive biases. If you have been buying groceries consistently, food price increases may have been so gradual as to slip under your radar. But if you’ve just visited the dentist for the first time in a year, you might be shocked at how expensive it is these days.
The emotion you feel in the latter scenario may make you give more weight to that one instance of price increase as “proof” that inflation is now out of control.
Even accounting for cognitive bias, I still think that a key reason for this apparent discrepancy is because the Consumer Price Index isn’t exactly representative of actual spending habits.
For example, “medical products, appliances & equipment” fell by 1.7% in Jun 2019 (vs Jun 2018). That’s great and important to note, but I don’t think most of us buy CPAP machines every month.
Such instances of low inflation, or even deflation, bring down the official inflation rate to lower than what it feels like. Which brings me to my next point…
Which consumer goods inflate quicker than others?
The sneaky thing about inflation is that it’s really uneven, so what we experience in reality feels 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%, 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.
In 2019, both rental housing and car costs have remained low — in fact, both went down, by 1.4% and 0.6% respectively, when you compare Jan to Jun 2019 vs Jan to Jun 2018.
So what items have been getting more expensive this year?
Food: It’s no surprise that dining at restaurants is now 1.7% more expensive than a year ago, but even hawker food rose by 1.5%. For groceries, fruit prices rose by 2.2% in just a year, while staples like bread, cereal and drinks went up by 1.6% to 1.7%.
Utilities: According to the SingStat report, “housing fuel & utilities” went up by a staggering 4.4% compared to the same period last year, which makes absolutely no sense since the Open Electricity Market was supposed to help us save money.
Public transport: While owning a car got 0.6% cheaper over the past year, us plebs who take public transport are not so lucky. Not only do we still have to bear with unacceptable amounts of body contact on over-packed MRTs, we now have to pay 2.4% more compared to last year. Someone please explain this to me?!
Education: “Tuition & other fees” was one of the significant inflators between 2018 and 2019, having increased by 2.7% so far. No wonder this mom of 5 would rather skip the enrichment classes.
Travel: Surprisingly, the CPI includes “holiday expenses” in the basket of goods. This actually increased by a whopping 3% in the past year, which is disturbing considering how much Singaporeans travel.
How does the inflation rate affect all of us?
Just to reiterate, although the core Singapore inflation rate for 2019 is “officially” just 1.4%, it will most likely feel like a lot more to you — even if (especially if!) you do normal things like 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% since last year to keep pace with inflation? If you didn’t get an 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 core inflation rate of 1.4% 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 CPI reports and pay special attention to the categories 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).
After checking “my” categories, I found that the perceived inflation rate of 3% is actually a lot more applicable to my life than the real statistic is.
For a start, I would make sure that my income is at least keeping pace with that. Ideally, it should surpass 3% 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.
While believing in an inflation rate of 1.4% may lull me into a false sense of complacency, once I realised it’s practically more like 3%, I’m starting to worry.
It’s not easy to find low-risk instruments that can beat 3%. 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%.
I am seriously considering moving more money to my SA for a safer 4% interest rate, and moving some of my savings into investments to even out that not-so-stellar-after-all savings account interest rate.
What will YOU do to hedge against inflation? Tell us in the comments.