What Is Inflation And Why It Should Matter To You

Everything is expensive. Consumer prices in Singapore reached a 13-year high in May, driven by higher food costs, electricity and gas. While Singapore is known to have a high cost of living – it was ranked eighth in the 2022 Mercer Cost of Living Survey – today’s prices are unprecedented, prompting the Monetary Authority of Singapore (MAS) to take drastic action.

The reason for prices being so exorbitantly high? Inflation. Singapore has experienced a manageable inflation rate in the past. However, in 2022, the numbers have reached record-making levels, with core inflation (i.e., rate of inflation less accommodation and transport) hitting 4.4% in June, second highest only to the November 2008 rate of 5.5%.

Inflation has impacted every part of your day-to-day life, whether it’s choosing to suffer in the heat to avoid using the aircon or staying at home instead of going out to eat. Unfortunately, you can’t stop inflation, so you must learn how to deal with it. But what is inflation, exactly?

What Is Inflation?

Inflation is the speed of increase in the price of goods and services over time. The higher it is, the faster prices go up. In Singapore, for example, you have been used to seeing an average core inflation rate of 1.25% for the last decade, a far cry from our current rate of 4.4%.

With its small, open economy reliant on imports, Singapore saw a rise in prices due to global supply chain disruptions brought about by the COVID-19 pandemic. Russia’s invasion of Ukraine also added to the problem, as both countries are primary suppliers of basic commodities, such as oil, gas, metals, wheat and corn.

Inflation is not always bad. A moderate inflation rate entails a higher demand to buy things because the economy has strengthened, enabling people to purchase more.

The unemployment rate can also drive inflation. When the unemployment rate is low, employers can increase wages rapidly because the demand for labour is higher than the number of workers. Higher wages can lead to higher prices for products and services, which, in turn, drives inflation higher. In its July announcement, the MAS disclosed that the resident unemployment rate remained low while resident wage growth rose to 7.8% year-on-year in the first quarter.

To help manage inflation, the MAS has continued to tighten its monetary policy. In July, MAS announced that it estimates core inflation to be between 3-4% this year, up from an earlier forecast of 2.5-3.5%.

The MAS keeps a close eye on the market to keep inflation somewhat manageable. While Singapore manages better than its regional peers, the rates are still significantly high. Too high, and individuals might find it challenging to afford essential goods and services because their salaries aren’t enough to keep up with the costs. Overly high inflation rates may lead to stagflation.

What Is Stagflation?

Stagflation happens when the market is experiencing high inflation rates alongside slow economic growth. It means that individuals may not be financially secure enough to afford the higher costs.

While Ravi Menon, managing director of MAS, said in a press conference that they expect “neither a recession nor a stagflation” in the country next year, he warns that the economy is not out of the woods just yet.   

The growth in prices is not going to stop anytime soon. Therefore, it is best to make adjustments to protect oneself from the harsh impact of inflation.

How You Can Protect Yourself From Inflation

Inflation may seem like a foreign concept, with all the numbers and the jargon used every time people discuss it. But in reality, inflation affects everyone. You may not be worrying about money now, but it’s best to stay ahead of the problem to avoid bigger difficulties in the future.

1. Review your budget.

Keep track of your regular expenses. Are there items on the list that you can remove? Is it possible for you to find cheaper yet still quality versions of some of your usual grocery items? Do you have subscriptions to too many online platforms (e.g., streaming services, online magazines, food delivery services) that you barely use? Combing through the items you pay for regularly can help you minimize your expenses. By only focusing on the essential expenses, you’ll find that you have savings to spare.  

2. Look for shopping deals.

Don’t underestimate the power of a good sales promo. Note items you can purchase at a discount during specific times of the year when retailers hold major sales on their merchandise. Try discount apps that offer deals on food, shopping, and even travel options. Take the time to look up the best deals on the things you want to buy before purchasing. Haste makes waste, after all.

3. Read up on your credit card rewards.

Many credit cards offer points programs you can utilise whenever you purchase an item. Some give rebates or cashback offers on groceries, while others present vouchers in various outlets in exchange for points. Check if your credit card’s rewards program matches your lifestyle to make the most of every swipe you make. Make your credit card work for you.

4. Use public transport.

Singapore has one of the best public transport systems in the world, so why not use it more often? Gas prices are pricey and will continue to be expensive in the months to come. Adjusting your routine to accommodate bus times or train routes is a small sacrifice to pay when cutting costs.

5. Save electricity.

As wonderful as the aircon unit is, make sure you’re using it in the most energy-efficient manner to help manage costs. Invest in an inverter unit that helps save energy while keeping the desired temperature in your home. On cooler days, just use the fan!

6. Upskill yourself.

The MAS recommends that employees upskill to support household incomes and purchasing power. Keeping your skills up to date can help you stay on top of your company’s changing needs and may open better career opportunities. Take advantage of the upskilling programs available to you, whether in your company, online or offered by the government.  

7. Ask for a raise.

If you’ve put in the work, time, and effort, then you are entitled to ask for a higher salary. Aside from your contributions to the company, try to check the average salary of someone in your profession to see if yours can improve. If you’re earning more, you’ll have less to worry about outside of work and can focus on being a hardworking contributor to your company.

8. Look for a side-gig. 

If you can afford to take on another job, part-time jobs are a great way to help bump up your savings. Most part-time roles offer work-from-home options and flexible schedules that you can adjust around your existing routine.

The current global situation will continue to cause inflation to rise. Seeing everything from food to haircuts get more expensive may be a pain, but taking the proper steps to budget correctly can help you protect yourself from the worst.

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