In addition, Nuno Fontes from Trading Economics has said this temporary pick up had been anticipated in the January inflation report due to private road transport cost has climbed by 17. 4 percent in February, up from 10. 5 percent a month earlier. Business cycles are dated according to when the direction of economic activity changes. At the peak phase, the level of economic activities within the economy is high. Resources are full utilised and under such circumstances, cost of resources is high because increase price of goods and services produced.
Inflation is defined as a continuous and sustained increase in the general price level for all goods and services and purchasing power is falling over a period of time. It can be analysed as cost push or demand pull inflation, or a combination of such effects. Inflation rate is a measure of percentage changing prices on a year-to-year basis and its formula is: [(CPI this year – CPI last year) / CPI last year] x 100 When inflation rate is high, the commercial banks will reduce loans or change interest rates, consumption and investment decrease and real GDP will decrease.
Singapore inflation remains stubbornly high caused mainly by a spike in certificate of entitlement (COE) prices, the persistent tightness in the domestic labour market result into wage increases and thus, may passed on to consumers through higher prices and lastly, the housing costs. Private road transport cost will continue to be a major contributor to inflation this year, especially given the continuous rise in COE.
However, given the recent budget measures (imposing harsh car loan curbs), the transport cost may be expected to moderate but still, overall prices would still remain high as Singapore restructuring the economy to reduce the dependency of employing low-wage foreign labour including executive positions. Housing costs climbed 4. 2 percent in February, mainly because rentals continued to rise. Hence, resulting the other concern to the rising of business costs i. e rental and manpower cost.
On top of the above, since Singapore imports almost everything it uses – from consumer goods to food and oil, a large part of which comes from rising import prices. Food inflation was higher at 2. 3 percent in February compared to 1. 0 percent in January mainly because of the small increase in food prices which was associated with the Chinese New Year. Service fees rose by 2. 7 percent in February comparing to January 1. 9 percent due to majority led by the increase in the cost of household services for foreign workers. There are 2 causes of inflation: 1.
Demand-Pull Inflation occurs when the general price level rises due to an increase in aggregate demand (AD). AD will increase there are more disposable income due to decrease in personal income tax and result in purchasing power increase. 2. Cost-Push Inflation occurs when the general price level rises due to a rise in the cost of production. Due to rising costs, the consumption decrease and investment will falls because of the uncertainty of economy. Singapore may face this problem if assuming workers producing manufacturing export goods are retrenched due to rising costs and increased wage push.
Singapore might face dampened economic growth if there is cost push inflation. When inflation occurs, it has negative impacts on the economy. i. e: ? ? ? Cost of living increase, compromise standard of living Loss of value of money saved Debtors gain, creditors lose – Borrowers will benefit from inflation and lenders will lose from inflation, and this will lower investment lending. The Singapore government has roll out targeted measures to help Singaporeans deal with rising costs. Examples: ? Keeping the currency strong to dampen imported inflation and keep overall inflation as manageable as possible.