Singapore must guard against the danger of rising inflation

Inflation is a result of expectations of higher prices in the future, which drives people to spend more in the present. This then leads to a vicious cycle of higher demand causing higher prices and inflation rising over time. As the Singapore economy is inexplicably tied to the property market and because properties belong to a “high-value” asset class, expectations of capital gains in the property market will likely cause rising inflation in the country. 

Whilst recent figures suggest that inflation in Singapore remain subdued, it would nonetheless be prudent to guard against the dangers of rising inflation in Singapore, especially amid recent bullishness in the property market.
 
Rising inflation generally creates a downward pressure to the Singapore dollar, which will likely lead to a more serious social class divide in Singapore. The recent Institute of Policy Studies (IPS) study has already provided evidence of a social divide in the country, based on class rather than on gender, religion, race, etc. With rising inflation leading to a depreciation of the Singapore dollar and imports becoming more expensive, the low-income group will have much more to suffer compared with the high-income group due to basic necessities costing more. Moreover, as the high-income earners typically having more resources at hand, they are better able to hedge any prolong and continuing weakness in the Singapore dollar through investing and various leveraging means. More pronounced social stratification is certainly undesirable for any country from the perspective of nation building and political stability, as we witnessed from the chain of events unfolding in the US and Europe in the past year.

So what are the safeguards against rising inflation, perhaps in the near to medium term?

The government has done an excellent job at taming the property market. Such cooling measures must continue to stay unless and until the demand for property meaningfully subsides or at least tapers. In fact, more cooling measures should be implemented if the demand for property surges; tough for property developers but necessary.

Our Monetary Authority of Singapore (MAS) must also continue their excellent work e.g. in allowing the Singapore dollar to gradually appreciate. Indeed, our MAS serves as the nation's guardian in ensuring robust financial and social systems in the country. Additionally, with looming tax hikes possibly in the form of an increase in the goods-and-services tax (GST), it may be even more critical to allow a gradual appreciation of the Singapore dollar to rein in inflation and assist the low-income group.