I Did Not Realise How Much Inflation Could Affect Me

If there is one word to encapsulate the whole of 2022, inflation is arguably the winner. It has dominated headlines throughout the year, setting record highs not seen since the global financial crisis in 2008. While I knew that high inflation is a bad thing for the economy, I must admit that I was clueless as to how it really affected me.

Of course, I understood what inflation is in theory. Inflation is the rise in prices of goods and services over a certain period of time. I read that definition in textbooks back in my university days, and I hear my parents lament about increasing prices every year. This time, however, the mood feels ominous and all too real.

Singapore’s headline inflation rate hit a 14-year high of 7.5 per cent in September this year, with plenty of experts warning that high inflation numbers could persist in the years to come. Adding to the population’s woes are planned GST hikes for next year, which couldn’t have come at a worse time.

Inflation everywhere

As a young working adult with my whole life ahead of me, the negative headlines we’ve seen this year have gotten me worried about coping with the rising cost of living in Singapore. And as I dug deeper into its impact, I realised that the problem was much more nuanced than just higher prices of goods.

Here is what I found out:

1. Rising cost of everything

Young person calculating household expenses
Source: Envato Elements / prathanchorruangsak

Let’s start with the obvious one, which is actually not so obvious – the rising cost of goods and services. For simple folk like myself, I am tempted to measure inflation through the higher prices I pay for my NTUC groceries or the cost of my haircut this month. But inflation is a lot more than just higher food and barber prices.

The Consumer Price Index (CPI) is a standardised basket of goods and services used to measure consumer price inflation and includes categories of goods and services such as transportation, education, healthcare, housing, recreation, and communication. The collective rise (and fall) of these goods and services on a year-on-year basis make up the headline inflation rate, which, as previously mentioned, stood at a 14-year high of 7.5 per cent in September.

In Singapore, the Monetary Authority of Singapore (MAS) prefers to use the core inflation rate as a more appropriate measure of inflation because it excludes two big-ticket items from the CPI basket, namely housing and private transportation. Singapore’s core inflation rate reached 5.3 per cent in September, inching closer to rates not seen since the 2008 global financial crisis. It also means that the prices of everything else — excluding housing and private transportation — have risen drastically. 

2. Homeownership

Public housing in Singapore
Source: Envato Elements / Javanng

Aspiring to own a home in Singapore can feel like a constantly shifting goal post. In a bid to tame inflation, central banks around the world have hiked interest rates. The US Federal Reserve, in particular, has increased its policy rate by 375 basis points so far this year. It is the fastest pace of increase since the early 1980s. This has ramifications for Singapore, where the MAS has responded to inflation by tightening monetary policy in October, the fifth time in 12 months.

To put it simply, aspiring homeowners (myself included) in Singapore are now faced with more expensive home loans due to higher interest rates. Fixed home loan rates offered by 3 major banks in Singapore touched 4.5 per cent. Additionally, the new property cooling measures introduced by the government in 2021 in a bid to taper public housing demand to reduce skyrocketing house prices have led to more hurdles for aspiring homeowners.

Anyone looking to take up an HDB loan has to now fork out a 20 per cent down payment, where it was previously 10 per cent. Remember, this is just public housing we are talking about. It was supposed to be affordable. As for private housing, such as condominiums, a peasant like myself would have to either inherit a huge sum of wealth or strike the lottery to own one. Suffice to say that most people would find it more feasible to wait until the housing market cools off and for central bank rate hikes to pivot in the other direction before attempting to buy a home. This brings me to my next point.

3. Starting a family

Young couple calculating expenses. Rising expenses can deter young couples from moving on to the next phase of their lives
Source: Envato Elements / DragonImages

For young couples looking to start a family, the aforementioned housing woes can have a spiralling effect. Delays in purchasing a home can also mean delays in getting married or having a child, as most Singaporean couples try to secure a home first before moving on to marriage and having a child or two.

Conversely, some couples who are waiting for the right moment to purchase may opt to rent first, but not even the rental market has been spared from the long arm of inflation. This author has heard many horror stories from friends about landlords increasing their rentals by about 30 per cent to 50 per cent.

Imagine what would happen to the economy in the long run when more and more young couples put off their major life plans because of this. It is a well-known fact that Singapore’s birth rate has been steadily declining. When young couples of today delay marriage, buying a home and having children, the impact will be far-reaching into the future.

As for myself, well, I would have to first find a partner, so it doesn’t really affect me for now. But hey, that special someone might just show up tomorrow; who knows?

4. Retirement funds

Runaway inflation poses a serious risk of eroding retirement funds
Source: Envato Elements / ijeab

More pressing to me at this point is how stubbornly high inflation rates could erode my retirement savings. As prices of goods and services rise, logic would dictate that my retirement savings should either outpace or at least keep up with the inflation rate. Being able to retire well means the ability to increase or at least maintain purchasing power with my CPF funds, despite persistently high inflation.

Final thoughts

So you see, inflation is not as simple as the increase in the price of your favourite prata or movie ticket. It has deep ramifications for the whole economy as well as for every individual. It is simply not good enough to sit back and assume that inflation will eventually come down to lower levels. My worries about how inflation impacts my retirement funds have led me to investigate ways to enable my savings to keep up with inflation rates. This I will share with you in another post to come, so watch this space.

In the face of such adversity, one can only prepare for the worst and hope for the best, as the stoic proverb goes. Until then, stay prudent.

Sources: CPF, CNA, ValueChampion, Moneysmart, SingStat

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