ST Nov 13, 2007
Inflation could hit 5% early next year, then taper off
By Li Xueying
AS CONSUMER prices continue to rise, inflation in Singapore will likely surge to 4 or 5 per cent in the first quarter of next year.
But it should taper off by the second half of the year to 'more normal conditions', said Trade and Industry Minister Lim Hng Kiang yesterday.
The average rate for next year should be around 3 per cent.
Fuelled mainly by rising global oil and food prices, inflation recorded a 13-year high of 2.9 per cent in August. It is expected to dip to 2.7 per cent in the last quarter, Mr Lim told Parliament.
Citigroup economist Chua Hak Bin said that the 5 per cent rate predicted would be a 'historic high' in the 25 years since 1983. The previous high was in July 1991, when it hit 4 per cent.
Most economies, including Singapore's size up inflation by tracking the Consumer Price Index, or CPI. The CPI measures the cost of a basket of goods and services consumed by most households.
Yesterday, Mr Lim cautioned against 'interpreting a rise in the headline CPI as necessarily reflecting an increase in the cost of living'.
It depends on the individual household's spending. 'Switching to cheaper products can reduce the cost of living despite a rise in the CPI,' he added.
But of course a rise in the CPI reflects an increase in the cost of living. After all, the CPI is meant to track the cost of living. If the CPI does not track the cost of living, then what would you want it for?
As for individual households switching to cheaper products, well, in fact, they have to. That’s the effect of inflation - your dollar has less purchasing power. Therefore with the same amount of dollars, you can only buy cheaper products.
Minister Lim must be confusing “cost of living” with “standard of living”. Cost of living means the cost of maintaining a certain standard of living. In turn, standard of living refers to the quality and quantity of goods and services generally available to a certain class of people (for example, average Singaporeans).
Instead of saying that “switching to cheaper products can reduce the cost of living”, Minister Lim would have been more accurate to say, “switching to cheaper products can lower the standard of living”. For example, instead of living in a 5-room HDB flat, you can live in a 1-room HDB flat (a cheaper product). Instead of having chicken rice and vegetables for lunch, you can just eat plain porridge (a cheaper product).
Living in a 1-room HDB flat and eating plain porridge constitutes a lower standard of living. So yes, by switching to cheaper products, you can lower your standard of living. And a lower standard of living does cost less to maintain.
In summary, what is Minister Lim's advice to you? To deal with inflation, lower your standard of living.
Wow, and for telling you that, he even gets a world-class ministerial salary. I bet inflation doesn't bother him much.