Commentary: There is much to be happy about in Singapore’s fight against inflation

WHAT COULD INCREASE INFLATION?

As a small and open economy, Singapore is very sensitive to international price fluctuations. Supply chain disruptions and the rise in commodity prices due to COVID-19 and the Russia-Ukraine war were known external factors that pushed up inflation in 2022 and 2023.

While no one can predict with a crystal ball how the global situation will develop, it is easy to see that an increase in geopolitical tensions in the Middle East or a renewed escalation of the Russian-Ukrainian war could drive up freight rates and energy and raw material costs.

In Singapore, rising domestic labour costs – including wages – can lead to higher prices for the products and services of industries that require labour and, ultimately, to higher inflation.

Structurally, there are signs of inefficiencies in Singapore's labour market that are driving wages upwards. For example, while big data and artificial intelligence are major growth areas, there is still a shortage of talent in these areas.

The average worker in Singapore – in tech or any other industry – naturally wants to earn more. But the key is consistency and sustainability. Drastic pay rises that are not matched by productivity gains risk triggering a wage-price spiral and exacerbating inflation. Ultimately, this does no good to anyone or to the economy.

The good news is that significant progress has been made in the fight against inflation. The bad news is that it is too early to declare victory.

Your chicken and rice prices may stabilize soon, but don't count your chances before they're over.

Alvin Liew is a senior economist at UOB.