How Singaporeans are Being Hurt by Inflation (and Don’t Realise It)

Consequences of Inflation
How Singaporeans are Being Hurt by Inflation (and Don't Realise It)

If you’ve been keeping up with the news of Singapore’s inflation rates in 2022, you might be in a state of panic. In December 2021, the headline inflation rate soared to 4%, exceeding the initial projection of 3.7%. Similarly, the core inflation (excluding accommodation and private transport) also rose to 2.1%, above a median estimate of  1.8%.

This means that our cost of living has been on the increase. With MAS projections of core inflation at 2-3% and headline inflation at 2.5-3.5%  for 2022, we can expect things to continue to get more expensive.

You’ll be paying more and more for food, public transport and, well everything else – including travel! Besides the obvious price hikes, here’s what else this means for you.

Your savings are being eroded as we speak

Savings account interest rates are pretty damn pathetic in Singapore—we’re talking about 0.1% for most run-of-the-mill savings accounts. While you would be hard-pressed to find savings accounts that offer interest rates that surpass the projected 3% core inflation rate, you’ll find your best bets here.

What this means is that you should find ways to invest your money and keep as little in cash as you can get away with. Other than your emergency fund and expenses for the month, try to find ways to make the rest of your money grow. Even if the bank interest rates are paltry, it beats letting your money whittle away with time.

30 years from now, that $200,000 in cash you’ve managed to scrounge together in time for retirement will be worth the price of not much more than two cocktails.

Your wages may not keep pace with inflation

Just because everything is getting more expensive doesn’t mean you’ll necessarily be paid accordingly.

And overstaying your welcome in one job is exactly what can cause you to suffer from a stagnant salary. That’s why recruiters advise that you change jobs at least once every three years.

However, there is some reason for optimism. With the pull back of the covid-19 regulations this year, things are looking up for the job market and the economy as a whole.

So monitor your own wage trajectory, and if you realise your salary isn’t able to at least keep pace with inflation, it’s time to leave. And perhaps, this newfound information can be your bargaining chip when you do ask for a raise.

Businesses are having a tougher time

Everybody already knows the impact that covid-19 has had on the economy. It has led to many businesses shuttering their doors due to plunging sales and rising operations costs.

Inflation will only intensify the cost-related pressures felt by businesses and raise their bottom line, which is bad news considering the businesses still standing have not fully recovered from the losses felt by the pandemic.

You might not be a business owner yourself (or maybe you are), but your employer is one. If your company isn’t doing well, you can kiss that fat bonus and generous increment good bye, and start worrying about retrenchment instead. You do have reasons to be optimistic, though!

It might come as a surprise but in the past year, more firms have been set up than closed. With the easing of the covid-19 measures in the foreseeable future, there are more reasons to believe that things would be looking up for businesses.

Inflation has an impact on your financial decisions

You might not realise it, but many of your financial decisions are influenced by inflation.

For instance, when buying a home, many Singaporeans tend to try to commit to as expensive a property as they can afford.

In its annual Financial Stability Review (FSR) released last year, the MAS reported that Singapore households have amassed a larger pool of debt than they had pre-pandemic.

Inflation has a part to play in this kind of behaviour. Because people expect property to get more expensive later on, they are not only in a hurry to jump into the property market as early as possible (cue couples who apply for a BTO flat two days after meeting on Tinder), but also want to buy as much home as they can, both for investment purposes and because they’re afraid they won’t be able to afford as much later on.

Trouble is, this buying behaviour often happens to the detriment of your quality of life. If you’re chained to a huge mortgage you can’t really afford for the next 30 years, you’d better pray you never get retrenched or so burned out you need to get off the hamster wheel.

How has inflation affected you? Tell us in the comments!