Mr Liang Eng Hwa: To ask the Minister for Trade and Industry (a) what is Singapore’s inflation outlook in the near and medium terms; (b) what are the causes of the rising inflationary pressures; (c) what is the assessment of the likely impact of these inflationary pressures on low and middle income households; and (d) whether there will be mitigating measures to reduce the impact of rising costs arising from these inflationary pressures on households and businesses.
Mr Saktiandi Supaat: To ask the Minister for Trade and Industry (a) whether the Ministry can provide an update on the risk of a sharp accumulation of external and domestic cost pressures affecting prices of goods and services in Singapore; and (b) other than tighter monetary policy, what steps can be taken to mitigate some of the effects of rising costs over the next 12 months.
Oral Answer (to be attributed to Minister of State for Trade and Industry Alvin Tan)
1. CPI-All Items inflation picked up to 2.5% on a year-on-year basis in the third quarter of 2021, from 2.3% in the second quarter. The rise in domestic inflation came largely on the back of higher external inflation due to increases in global energy and food commodity prices, and persistent supply bottlenecks in key global industries and transport hubs.
2. On the energy front, crude oil prices have risen to above US$80 per barrel since early October on account of the decision by OPEC+ to keep supply increases modest, even as oil demand continues to pick up due to the global economic recovery and the rally in global natural gas prices. Higher oil and gas prices will translate to higher electricity prices domestically. About 95% of our electricity is currently generated using natural gas.
3. On the food front, global prices for food commodities such as cereals and vegetable oil have risen due to supply constraints arising from weather-related disruptions, manpower shortages and export restrictions in key food-producing countries, amidst rising global demand. Higher global food prices will in turn exert upward pressure on domestic food prices.
4. Meanwhile, supply bottlenecks for goods such as semiconductors, and congestion at ports around the world, have contributed to a rise in the prices of imported consumer goods in Singapore.
5. Domestically, we expect labour costs to rise as the labour market continues to recover and border restrictions limit non-resident worker inflow. We also expect to see inflation in accommodation to persist due to strong rental demand for housing amidst construction delays caused by labour shortages in the construction sector. Against this backdrop, CPI-All Items inflation is projected to come in at around 2% this year, and average 1.5% to 2.5% in 2022.
6. Despite the rise in inflation, Singapore’s economic recovery for the year remains on track. Barring a major setback in the global economy, GDP growth is expected to come in between 6% and 7% for the full year, mainly supported by outward-oriented sectors, such as the manufacturing, finance and insurance, and information and communications sectors.
7. The Government recognises that higher inflation is a cause of concern for Singaporeans, particularly those in lower-income households. To manage the cost of living pressures faced by Singaporeans, the Government adopts a multi-pronged approach.
8. First, in view of the external and domestic cost pressures, MAS recently announced a shift towards an appreciating path for the trade-weighted Singapore dollar (the Singapore dollar nominal effective exchange rate or S$NEER). A stronger Singapore dollar will help to mitigate imported inflation and temper domestic cost, to ensure price stability over the medium term.
9. Second, the Government strives to manage domestic supply-side constraints such as the supply of industrial and commercial space to help moderate business cost increases, and reduce the knock-on impact on consumer prices. During the pandemic, the Government has also disbursed rental relief to help businesses cope with their rental costs. In addition, policy measures, such as the Wage Credit Scheme, Jobs Support Scheme and Jobs Growth Incentive Scheme, provide some support to businesses in terms of their manpower costs.
10. Third, to mitigate the impact of rising global food prices, the Government has diversified food import sources to help ensure that the prices of our food supplies remain competitive.
11. Fourth, we will continue to pay particular attention to Singaporeans from lower-income households who need support for their basic living expenses. The Government will continue to provide assistance through ComCare and the permanent GST Voucher scheme. From time to time, the Government also introduces one-off support measures such as the Budget 2020 Grocery Vouchers Scheme. In addition, Singaporeans from lower- to middle-income households who have experienced involuntary job or income loss due to the economic impact of COVID-19 can apply for financial assistance provided through schemes such as the COVID-19 Recovery Grant and the Courage Fund.
12. The Government will continue to monitor inflation and cost of living pressures closely, and adjust its policies if necessary.