[Updated] Inflation rate in Singapore and how to protect yourself from rising inflation

Latest inflation data from Singapore

As we can see from the data above, inflation in Singapore remains high throughout 2023. Headline inflation, which measures the overall inflation rate of an economy, has risen by 4.7% year-on-year and 5.1% since the beginning of 2023. MAS core inflation, which excludes the cost of accommodation and private transport, has risen by a slightly more modest 3.3% year-on-year and 4.3% since the beginning of 2023.

All spending categories used to measure inflation in Singapore have increased since last year, except for clothing and footwear, whose costs fell 1.7% year-on-year.

How do we measure inflation?

The Consumer Price Index (CPI) is the most commonly used measure when it comes to inflation. The CPI measures the year-to-year change in general prices of goods and services within an economy. Various survey methods are used to measure the CPI, such as taking price samples of various goods and weighting those goods based on how much of them the average person consumes. The more we consume a good, the greater the impact of an increase in the price of that good on our purchasing power and therefore the greater its weighting within the CPI.

In the infographic below, we see the weighting of the different types of goods and services used in compiling the CPI basket in Singapore.

Source: Singapore Department of Statistics

A stable inflation rate of 2% signals a healthy economy. However, it becomes a cause for concern when inflation rates exceed this target range, such as the 4% to 5% inflation rates we have seen in Singapore recently.

This unsustainable rise in prices can be a sign that the economy is overheating, which can cause great harm to households, especially if inflation rises more than wages. In this sense, inflation undermines people's purchasing power, resulting in them not being able to consume as many goods and services as they need or want, affecting their desired standard of living.

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Related: 3 ways to save money amid rising inflation in Singapore

What impact does high inflation have on us?

Inflation erodes the value of our money. Historically, the inflation rate for consumer goods in Singapore has ranged from -1.8% to 22.4% between 1961 and 2022, with an average of 2.6% per year.

Even with this moderate rate of inflation, we have seen a 350.53% increase in prices for consumer goods in Singapore from 1961 to 2022. An item that would have cost you S$100 in 1961 would cost S$450.53 today.

We see the impact of inflation in two main ways. First, goods become more expensive and the cost of living increases. In Singapore, we are already feeling this, as in recent months, prices have risen for everything from our daily meals at the street market to public transport fares.

Second, the money we have saved in the bank will have less purchasing power in the future as inflation continues to rise. Our hard-earned money that we have diligently saved will not be able to provide us with the same luxuries in the future as it does today. This can have a big impact on all of your important financial milestones, including saving for the down payment on your first home (remember that inflation also affects home prices) as well as how much you need to build up for your retirement nest egg to make ends meet in your golden years.

Related: Given the current inflation rate, is it enough to retire on a monthly expense of S$6,000?

What can you do to protect yourself from the effects of inflation?

Although we have no influence on changes in the general prices of goods and services, there are ways to stretch our money so that the impact of these rising prices on our purchasing power is reduced.

Source: Unsplash

Shop smart by using cashback credit cards

One direct way to mitigate the effects of inflation is to use cashback credit cards. There are many cashback credit cards that reward you when you spend on everyday purchases like eating out, shopping online or your weekly grocery shop. Using such products is extremely helpful when trying to offset some of the price increases caused by inflation.

A good example of such a credit card is the Citibank Cashback Credit Card. It gives you 6% cashback on your spending at restaurants and cafes worldwide, 8% cashback on grocery and supermarket spending worldwide and 20.88% cashback at Esso and Shell gas stations.

Another great option is the UOB One credit card, which gives you up to 15% cashback at select partners like Shopee, Cold Storage, Giant, Guardian and even SimplyGo. By using these high-interest cashback credit cards, you can mitigate the effects of inflation by receiving a percentage of your monthly spending as a reward, thereby offsetting some of the increase in the price of goods and services.

Recommended credit cards for more savings

Related: How to Maximize Credit Card Rewards and Beat Inflation

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Protect your savings with high-interest savings accounts

Prevent your savings from being eaten away by investing them in a high-yield savings account. This is crucial for longer-term financial goals like saving for your first home or for retirement, as inflation is felt most keenly over longer periods of time when price increases have the greatest cumulative effect.

Using a good savings account with low hurdles and high interest rates like the UOB One Savings Account is a good first step to protect your money from the effects of inflation. With an effective interest rate of 5% per annum, the UOB One Savings Account effectively matches current inflation rates, so the real value of your money (i.e. the value of your money after inflation is taken into account) does not decrease over time.

Recommended savings account for more savings

Source: Pexels

Invest in assets that serve as a store of value

Another way to diversify your investment portfolio and preserve your wealth is to leverage asset classes that can act as stores of value. An asset is considered a store of value if it can retain its value without depreciating. This means that the asset can be stored, accessed, and exchanged in the future without its value decreasing.

Gold is a classic store of value. Because gold is a physical asset, its price is not as influenced by central banks' monetary policies and changing interest rates as compared to asset classes such as stocks or bonds. Gold has proven to be timeless, and the price of gold has risen steadily over the past few decades.

If you have significant cash reserves and are concerned about a loss of purchasing power but do not want to take the risk associated with investing in stocks, investing in gold – either in a more traditional way, such as buying physical gold, or in a more convenient way, such as buying a gold-backed ETF – is a great way to diversify your portfolio and make it even more inflation-resistant.

Related topics: In search of gold – How to invest in this raw material

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While inflation may seem like a monster that you can't run away from, there are many ways we as individuals can proactively make the most of the current economic situation. If you'd like to learn more about different ways you can invest to get ahead of the curve, Check out our blog for all our latest investment content and open an online brokerage account today to start your investment journey.

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Source cover image: Pexels

The article originally appeared on ValueChampion.

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