Current Singapore Inflation Rate: Why It Matters

Inflation is a hot topic in Singapore, impacting the cost of everything from your morning coffee to your monthly rent. Understanding the current inflation rate and its potential impact on your finances is crucial for making informed decisions about spending, saving, and investing. This article provides a comprehensive overview of inflation in Singapore, including the latest inflation numbers, what inflation is, how it's measured, and practical strategies to protect your purchasing power.

Monetary Authority of Singapore (MAS) Core Inflation stepped down by more than expected to 1.9% year-on-year in Q4 2024, from 2.7% in Q3. This means that the prices of goods and services, excluding accommodation and private transport, increased by 1.9% compared to the same period last year. For consumers, this indicates a slight easing in the upward pressure on prices, providing some relief from the rising cost of living.

However, a closer look at the sectors driving inflation reveals that certain expenses remain elevated. Food prices, another significant contributor to inflation, are also on the rise, making grocery shopping and dining out more expensive. Similarly, transportation costs have drastically increased, with a spike of 3.1% year-on-year, the highest out of all the sectors. This surge is largely attributed to higher bus and train fares, impacting commuters significantly. Other sectors experiencing price increases include hospital and outpatient services, holiday expenses, and education.

Looking ahead, MAS Core Inflation is now forecast to average 1.0–2.0% in 2025, lower than the 1.5–2.5% projected in the October 2024 Monetary Policy Statement. What this suggests is that inflationary pressures are expected to remain contained, offering some optimism for consumers. However, it's important to remain vigilant and adapt your financial strategies today so that you can navigate the evolving inflationary environment.

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. Essentially, your money buys less over time as prices increase. Inflation affects every aspect of the economy, from consumer spending and business investment to government policies and interest rates.  

For consumers, inflation erodes the value of savings and reduces the affordability of everyday necessities. This can lead to difficult choices between cutting back on expenses or dipping into savings to maintain living standards. Understanding inflation is crucial for making informed financial decisions and protecting your purchasing power.

• Demand-pull inflation: This occurs when the demand for goods and services in an economy surpasses the available supply. This imbalance can lead to businesses raising prices to capitalise on the heightened demand, resulting in a general increase in price levels.

• Cost-push inflation: This happens when the costs of producing goods and services rise, forcing businesses to pass on those increased expenses to consumers in the form of higher prices.  Factors that can contribute to cost-push inflation include rising raw material prices, increased wages, or supply chain disruptions.

• Built-in inflation: This type of inflation is driven by expectations of future price increases. When people anticipate inflation, they may demand higher wages or adjust prices accordingly, creating a self-fulfilling prophecy that perpetuates inflation.

• Monetary inflation: This occurs when the money supply in an economy expands at a faster rate than the growth of goods and services. This excess money in circulation can lead to a decrease in the value of money, as there's more currency available to purchase the same amount of goods and services, driving prices upward.

• Imported inflation: This happens when the prices of imported goods and services increase. As a significant portion of goods consumed in Singapore are imported, rising import prices can directly impact domestic inflation, making imported products more expensive for consumers.

• Asset inflation: This refers to the rapid escalation of asset prices, such as real estate or stocks, often driven by speculative investment or an overabundance of liquidity in the market. This can lead to inflated asset values that may not reflect their underlying intrinsic worth.

• Wage inflation: This occurs when wages increase at a faster pace than productivity gains. This can lead to increased production costs for businesses, as they have to pay more for labour without a corresponding increase in output, potentially resulting in higher prices for consumers.

• Structural inflation: This type of inflation is caused by inefficiencies or bottlenecks within the structure of an economy. This could include supply chain disruptions, inadequate infrastructure, or regulatory hurdles that hinder the smooth flow of goods and services, leading to price increases.

• Hyperinflation: This is a rare and extreme form of inflation characterised by an uncontrolled and rapid increase in prices. This severe economic instability can erode the value of money quickly, leading to widespread economic hardship and potentially social unrest.

• Stagflation: This challenging economic situation occurs when high inflation is combined with stagnant economic growth and high unemployment. This presents a difficult scenario for policymakers, as addressing inflation through traditional measures like raising interest rates can further stifle economic growth and exacerbate unemployment.

Singapore calculates inflation using the Consumer Price Index (CPI), which measures the average change in prices paid by consumers for a basket of goods and services over time. This basket represents a wide range of commonly purchased items, from food and transportation to healthcare and education. By tracking the price changes of these items, the CPI provides a comprehensive picture of how the cost of living is evolving for consumers. The CPI excludes non-consumption expenditures such as purchases of houses, shares, and other financial assets, as well as income taxes. This focus on consumer-related expenses makes the CPI a relevant indicator of the cost of living for Singaporeans.

Another measure of inflation is the Personal Consumption Expenditures Price Index (PCEPI), which tracks the changes in prices of goods and services purchased by households and non-profit institutions serving households. The PCEPI is often favored by central banks as it covers a broader range of expenses than the CPI, including healthcare and financial services, providing a more comprehensive view of price changes across the economy.

When discussing inflation, you might hear the terms "headline inflation" and "core inflation." Headline inflation refers to the overall inflation rate, encompassing all items in the CPI basket. Core inflation, on the other hand, excludes volatile items like food and energy prices, which can fluctuate significantly in the short term. By excluding these volatile components, core inflation provides a more stable measure of underlying inflation trends, allowing policymakers and economists to better assess the long-term trajectory of price changes.

>> Discover how inflation and prices have changed over the last decade

Core inflation in Singapore has generally been stable over the past decade. From 2015 to 2019, core inflation averaged 1.1% per annum, reflecting a relatively predictable and manageable price environment. However, recent years have seen significant fluctuations due to global events and economic shocks. In 2020, the COVID-19 pandemic and volatile global supply chain issues caused disruptions across the globe, leading to weakening inflation worldwide. This resulted in Singapore experiencing a period of deflation, with core inflation turning negative at -0.2% in 2020.

As the global economy gradually recovered and demand rebounded, consumer prices in Singapore surged, reaching a high of 6.1% in 2022. This inflationary spike was driven by a combination of factors, including supply chain bottlenecks, increased global demand for goods and services, and rising energy prices.

In response to this rising inflation, MAS implemented a series of policy tightening measures, including five consecutive increases in the policy band starting in October 2021, with two of these being unscheduled Monetary Policy Statements. These decisive actions aimed to curb inflation and stabilise the economy, demonstrating the MAS's commitment to maintaining price stability.

Inflation is a significant concern because it erodes the purchasing power of your hard-earned money, making it increasingly challenging to maintain your current lifestyle. As prices rise, your daily expenses increase, impacting your budget and long-term financial goals. This can lead to difficult trade-offs, forcing you to cut back on discretionary spending or dip into your savings to cover essential costs. In Singapore, where the cost of living is already relatively high, inflation can place a significant strain on household budgets, particularly for those with fixed incomes or limited financial flexibility.

The impact of inflation is particularly pronounced in key expenditure categories for Singaporeans. In 2024, the top three spending categories were housing and utilities (29.4%), food (20.4%), and transport (13.1%).  Inflation in these sectors can significantly impact your overall expenses and financial well-being, which is why you should take proactive steps to protect your purchasing power.

With inflation affecting the cost of everyday goods and services, many Singaporeans are wondering, "How bad is inflation right now?" While recent reports show that inflation may be going down, it's still crucial to take proactive steps to protect your finances. Here are some strategies to help you safeguard your purchasing power and navigate the current inflationary environment:

Keeping all your money in cash during inflationary periods can lead to a significant loss of purchasing power. Instead, consider high-interest savings accounts or alternative financial products that offer returns that outpace inflation. These options can help your money grow while remaining accessible for emergencies.

>> RSP: Invest your savings for short-term goals

Diversifying your investments across different asset classes can help hedge against inflation and reduce the impact of rising prices on your overall portfolio. Here are some investment options to consider:

• Real Estate: Real estate often acts as a natural hedge against inflation. As prices rise, so do property values and rental income, potentially outpacing inflation and preserving your purchasing power.

• Inflation-Protected Bonds: These bonds are designed to protect investors from inflation. Their principal and interest payments are adjusted based on inflation rates, ensuring that your returns keep pace with rising prices.

• Commodities: Commodities, such as gold and silver, can also act as an inflation hedge. As prices rise, the value of these commodities tends to increase, potentially offsetting the impact of inflation on your portfolio.

• Foreign Currencies: Diversifying your investments into foreign currencies can provide a hedge against inflation in your home currency. If your home currency depreciates due to inflation, your investments in stronger foreign currencies may appreciate in value.

>> What are ETFs and how to invest in them?

Navigating inflation can be complex, and seeking professional financial advice can be beneficial. A financial advisor can help you develop a personalised strategy to protect your purchasing power and achieve your financial goals in an inflationary environment.

>> Ready to start investing? Check out our list of the best online brokers for online stock trading

At SingSaver, we're committed to providing accurate and reliable information to empower your financial decisions. Our articles are meticulously researched and grounded in credible sources, ensuring that the information you receive is trustworthy and up-to-date. We strive to present complex financial topics in a clear and accessible manner, making it easier for you to understand and apply the information to your own financial situation.

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