Inflation is rearing its ugly head, causing hardships in the world. Singapore is not immune to it. In April this year, Singapore Monetary Authority (MAS) tightened its policy, the third time in six months, as it aims to “slow the inflation momentum and help ensure medium-term price stability”.
It also raised its forecast for core inflation (which strips out private road transport and accommodation costs) to rise between 2.5 and 3.5 per cent this year, up from the 2 to 3 per cent projection made in January.
The central bank said that fresh shocks to global commodity prices and supply chains brought about by both the war in Ukraine and the COVID-19 pandemic are adding to domestic cost pressures.
In his interview with Nikkei’s Editor-in-Chief Tetsuya Iguchi on 22 May 2022, Prime Minister Lee Hsien Loong described inflation as a problem.
Stimulus measures had helped the global economy to recover faster than anybody expected from COVID-19.
However, these measures continued to be applied very generously, for political reasons, even as the economy was already visibly recovering in the US, and also in Europe, PM Lee said.
This has therefore contributed to a spike in inflation (due to demand) even before Ukraine, he added.
The Russia-Ukraine war in Europe has made it worse. It has disrupted energy supplies, with Russian energy now being blocked from world markets. It has disrupted food supplies including grain and that has added a supply side inflationary shock as well, PM Lee said.
Difficult to bring down inflation with a soft landing
“A year ago, the central banks were quite relaxed about the prospects of inflation being kept under control. In fact, they worried about deflation and they wanted to bring inflation up to a certain level, e.g. two per cent on average. I think they were too complacent even then. But now it is quite clear that they have to change their stance and I believe that they are doing so,” said PM Lee.
But now that inflation is quite high, drastic measures are needed in order to bring it back down and prevent inflationary expectations from taking root, PM Lee said.
“It is very difficult to do that and have a soft landing. There is a considerable risk of doing what you need to do but as a result provoking a recession.
It has happened repeatedly in the 60s, 70s, 80s, 90s. That is a risk which we have to anticipate and watch out for. You will have to take that risk because if you do not act against inflation, that will become a very serious problem for the world.”
