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Average Inflation in Singapore: Historical Context and Lessons

Sharmini Ravindran

CMO at Dezy
Published on 26.08.2022
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The Singapore Story is many things to many people, but it typically conforms to similar themes: a rags-to-riches journey; transformation from a sleepy fishing village to bustling metropolis; an improbable nation that defied the odds; and an Asian economic miracle.

However, when we dig deeper into Singapore’s short but extraordinary history, we will find that beneath the successes are setbacks, struggles and solutions to one curveball crisis after another.

Let us draw on the lessons and wisdom of the past, so that we may better understand what to make of Singapore’s current financial challenges, including the dual whammy of high inflation and high interest rates, amid a backdrop of geo-political tensions and a global economic system under stress.

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Singapore is No Stranger to High Inflation

The astonishing rapid economic growth of Singapore was by no means uninterrupted or preordained. Periods of growth were punctuated by periods of high inflation, economic downturns, and labor unrests, and necessitated difficult choices by Singapore’s leaders and her people.

For example, in the early 1970s, inflation rose to as high as 20%, on the back of global oil price shocks and the closure of the British naval base and subsequent withdrawal, which left thousands of people jobless and accounted for nearly 20% of Singapore’s economy at that time.In the early 1980s, rapid wage growth fuelled inflation, and this came to an abrupt stop during the recession of 1985 -  Singapore’s first since independence. The cause of it was a combination of weak global growth, which reduced demand for Singapore’s exports. Domestically,  Singapore’s construction and manufacturing industry, which were major employers and engines for growth, faced a slump as our costs began to compare unfavorably when other competitor countries regionally developed similar capabilities.

Graph: WorldBank (based on SingStat Consumer Price Index data)

More recently, Singapore’s open economy and financial centre faced significant shocks from the Asian Financial Crisis (1997) and Global Financial Crisis (2008). 

The impact of these crises on ordinary citizens were wide-ranging. For instance, in 1998, unemployment rose to 3.2% and saw the retrenchment of 28,300 workers. The overall contraction of the economy also led to weaker demand for properties of all kinds, as well as negatively impacting the local stock market.

The last period of (relatively) high inflation was during the Global Financial Crisis, during which Singapore saw three years of volatile consumer prices, after which inflationary pressures abated.

Adding oil to fire during this crisis were the fact that Singapore’s sovereign wealth funds had significant exposure to toxic financial assets in the United States, which led to billions in losses. What followed was a wave of retrenchments, wage freezes, frozen headcounts, and even reduced work hours.

During those periods of crisis, Singapore enacted bold moves to keep businesses afloat and workers employed, including reducing CPF contribution rates, investing in infrastructure projects and employee retraining, while making credit and financing more accessible. Together with co-ordinated public-private initiatives, these measures have helped Singapore weather past economic calamities and recover swiftly.

As we can see, even as a relatively young city-state of 57 years, Singapore has already undergone multiple periods of high inflation and financial crises. These developments put into perspective the current inflation situation in Singapore, which while at a 10-year high, isn’t exactly uncharted territory for Singapore and Singaporeans.

The Singapore Dollar and Inflation

As we have previously outlined, the primary lever that Singapore’s central bank – the Monetary Authority of Singapore (MAS) – uses to conduct monetary policy and influence the local economy is by managing the value of the Singapore Dollar against a trade-weighted basket of foreign currencies. This allows the MAS to have an influence on matters like domestic interest rates and the price of goods and services – and thus, the pace of inflation.

You might recall recent news reports that indicated MAS booked losses of $7.4 billion in FY21/22. As Minister for Finance and Deputy Chairman of MAS Lawrence Wong explained to Parliament, this ‘loss’ was the result of a ‘currency translation effect’ when the value of Singapore’s Official Foreign Reserves (OFR) was converted into Singapore Dollars, which has appreciated in value.

The MAS’ longstanding mandate is to maintain a strong, stable Singapore Dollar that appreciates gradually over the long-term. This can be confirmed by examining historical data of the Singapore Dollar against major currencies, most notably the USD-SGD pairing (pictured below).

Source: Yahoo! Finance

The value of the Singapore Dollar has appreciated gradually over the decades, and has been kept relatively stable in the past decade. This stability has given the MAS latitude to nudge appreciation of the Singapore Dollar more steeply in the face of heightened inflation.

This bodes well for the purchasing power of Singaporeans, and it also makes Singapore an attractive (albeit expensive) place to do business and make profits in. The Singapore Dollar is also a highly-desired currency to hold as a hedge in the foreign exchange markets.

Lessons from the Past, for the Present

Through this journey in the lifespan of Singapore, there are some lessons we can take to heart as we tackle today’s challenging financial situation – both on an individual level and as a nation.

First, no matter how dire or discouraging we might think the present economic situation is, the historical perspective allows us to appreciate that it too shall pass – as it always does, time and time again. The present situation mustn’t be allowed to derail our long-term plans for the future. We can and should continue to save, invest and work towards our dreams, no matter how small those steps are. In time to come, we will be thankful we did.

Second, Singapore’s government has always proven itself as being pro-active in managing Singapore’s economy and job market, never allowing things to deteriorate beyond repair. This means that amid a global crisis, Singapore is as good a place as any to work, invest and build your retirement nest egg. The strong Singapore Dollar means that any investments returns you make and monies you earn will be a powerful hedge against systemic inflation.

Third, just as every crisis required Singapore and her people to be more frugal, efficient, and bold, we too can’t save and invest like its ‘business as usual’. Like it or not, we have entered the cycle of heightened inflation and impending economic slowdown. We can start by relooking our investment portfolio and identifying opportunities for our funds to work harder for us.

Beat Inflation With Dezy

If you wish to earn higher returns that can beat even the high inflation we see today, do consider Dezy.


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