Jamus Lim and Alvin Tan spar over response to cost-of-living issues

SINGAPORE - Prices of food, transportation and energy here have been going up so fast that Singapore is now facing a cost-of-living crisis, said Workers' Party MP Jamus Lim on Tuesday (July 5).

He added in Parliament that the situation has gone beyond an inflation problem, and stressed that the Government must do more to help.

"When the prices of what we eat, getting to work, and keeping our homes and businesses running are all rising rapidly, this isn't an inflation problem any longer," he said.

"It is a cost-of-living crisis. It is therefore incumbent on policymakers to do what they can to alleviate the pain felt by the people."

Associate Professor Lim (Sengkang GRC) suggested several ways this could be done, including strengthening the Singapore dollar and spending more funds to support those who need it the most.

In response, Minister of State for Trade and Industry Alvin Tan said that the Government plans and executes its fiscal policies for the long term, but maintains dexterity to zoom into details that matter on the ground to Singaporeans as well as local businesses.

Its approach focuses on strong job creation and wage growth as the best ways to help Singaporeans tide over the current economic difficulties, and on making sure that the country has sufficient resources to tackle long-term challenges.

"This mindset and bias towards action have allowed us to weather storms and seize opportunities throughout our history. This is the hallmark of our government," he said.

"This is our commitment to Singapore, and we will continue to do our utmost to deliver on this commitment. Especially in these challenging times."

Mr Tan added that there is a need to recognise the global nature of price pressures that Singapore is facing.

The sharp rise in food and oil prices since the fourth quarter of last year principally reflects the effects of serious disruption of global supply, including the Ukraine conflict, he said. “It is inevitable that some of these price increases will affect our economy.”

On strengthening the Singapore dollar, Prof Lim said that doing so will reduce the cost of imported goods and services. A stronger currency could lower domestic inflation as well, given how so much of what is consumed here is imported.

He added that there is ample evidence that such strengthening is affordable, given how standard metrics for comparing the under and overvaluation of the Singapore dollar suggest that it is significantly undervalued.

Doing so could be as simple as ceasing interventions that restrain Singapore's exchange rate, and allowing foreign exchange markets to work, he said. "This is a luxury that precious few countries can afford, but one that we can leverage now."

Mr Tan said Singapore's central bank, the Monetary Authority of Singapore (MAS), takes several factors into account when it comes to the exchange rate.

Strengthening this rate cannot fully offset global prices without causing immediate negative consequences on growth, and therefore, the labour market, he warned.

He said this is why many advanced central banks are guarded in the speed and the extent to which they will raise interest rates.

"Monetary policy action in and of themselves have attendant spillover effects that must be taken into account in the uncertain challenging economic environment. Therefore, a judicious blend of tight monetary policy and targeted supportive fiscal policy that is carefully calibrated is most appropriate," he said.

Singapore maintains a stable macroeconomic environment so businesses and households can make economic decisions with confidence, said Mr Tan.

He noted that a core tenet is Singapore’s exchange rate-centred monetary policy, which has helped the country manage inflation. 

“During this period of rising inflationary pressures, MAS has pre-emptively tightened monetary policy since October last year. This longstanding policy has directly helped dampen imported inflation,” he said. 

For instance, while global food commodity prices increased by an average of 25.4 per cent year on year over the first five months of 2022, domestic food prices increased by an average of 3.6 per cent year on year over the same period, he noted.

He also cited how even as global energy prices rose by 27.5 per cent, energy-related components in Singapore’s consumer price index, which include the cost of electricity, gas and petrol, increased by 13.6 per cent year on year between January and May.

Another point Prof Lim made was that policies involving Singaporeans on fixed incomes have to be adjusted.

He said that for such people, who include retirees drawing from their Central Provident Fund (CPF) accounts or needy families on the Government's ComCare financial assistance scheme, inflation can be devastating.

"An elderly person spending $20 a day may now be able to buy only one prata instead of two for breakfast, be forced to skip their afternoon tea, or order two instead of three items of cai png (mixed rice)," he said.

"And what's worse, this diminished consumption will be with them for the rest of their lives, even when inflation has returned to normal rates, because elevated prices do not automatically come back down even when inflation disappears."

While financial markets can and do adjust returns to reflect higher inflation, this is not the case for those locked in fixed-income streams, added Prof Lim.

He suggested that ComCare assistance be raised permanently and universally by a "margin that reflects the excess inflation experienced by families for this year".

He also suggested that the Government roll out a temporary increase in CPF interest rates of around 2 percentage points for a six-month period, which would be consistent with the increase in inflation and could be funded by increasing the returns paid on Special Singapore Government Securities (SSGS).

SSGS are non-tradable bonds issued to the CPF to meet its investment needs for Singaporeans' retirement.

Mr Tan said that Singapore's current round of combined fiscal and monetary policy responses are expected to contain medium-term inflation without significant loss of output or inadvertently add to the underlying tightness of the economy.

When it comes to financial assistance programmes, inflation is one of many factors that the Government takes into account, he added.

"On indexing financial assistance payments to inflation, the Government regularly reviews our schemes to take into account needs and affordability. Inflation is one of many factors taken into consideration," said Mr Tan.