The new normal?
THEREIN lies the dilemma for MAS.
Much of today's and tomorrow's inflation can be attributed to the Government's own policies, such as the low numbers of COEs and a tight foreign worker policy.
The most obvious solution is for the Government to relax the foreign worker policy. But that would be politically unpalatable, given the great unhappiness Singaporeans have against over-crowding as well as the Government's overriding objective to reduce reliance on foreign workers.
In fact, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam has consistently maintained that there will be no U-turn on this particular policy.
Monetary policy, in this case, plays only a limited role in directly affecting inflation. It can compensate for domestic inflation by reducing imported inflation further - but since imported inflation is already muted, this would be at best an indirect solution.
Another way it can lower inflation is through dampening economic activity, so that the economy does not overheat.
DBS economist Irvin Seah thinks that MAS is sacrificing growth to combat inflation.
"What's worrying is that Singapore is fast losing its competitiveness in the export sector, with costs rising rapidly. A stronger Sing dollar hardly helps," he said.
if left unchecked, could spiral into runaway inflation.
CIMB economist Song Seng Wun believes that the recent monetary policy statement is meant more as a signal than to be used as a direct tool. "They are telling bosses and people, hey we are concerned about inflation and you should be too. In so doing they hope to anchor inflation expectations," he said.
Indeed, it was instructive that MAS itself said in its statement that its policy stance "is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth" (emphasis added).
In layman terms, what this all means is that people should be prepared for higher inflation for the next few years as the economy restructures. There will be pain as prices rise to reflect higher wages of people in the services industry and other sectors where companies are unable to find foreign workers to fill positions.
- http://www.singapolitics.sg/views/new-norm-tepid-growth-and-inflation
THEREIN lies the dilemma for MAS.
Much of today's and tomorrow's inflation can be attributed to the Government's own policies, such as the low numbers of COEs and a tight foreign worker policy.
The most obvious solution is for the Government to relax the foreign worker policy. But that would be politically unpalatable, given the great unhappiness Singaporeans have against over-crowding as well as the Government's overriding objective to reduce reliance on foreign workers.
In fact, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam has consistently maintained that there will be no U-turn on this particular policy.
Monetary policy, in this case, plays only a limited role in directly affecting inflation. It can compensate for domestic inflation by reducing imported inflation further - but since imported inflation is already muted, this would be at best an indirect solution.
Another way it can lower inflation is through dampening economic activity, so that the economy does not overheat.
DBS economist Irvin Seah thinks that MAS is sacrificing growth to combat inflation.
"What's worrying is that Singapore is fast losing its competitiveness in the export sector, with costs rising rapidly. A stronger Sing dollar hardly helps," he said.
if left unchecked, could spiral into runaway inflation.
CIMB economist Song Seng Wun believes that the recent monetary policy statement is meant more as a signal than to be used as a direct tool. "They are telling bosses and people, hey we are concerned about inflation and you should be too. In so doing they hope to anchor inflation expectations," he said.
Indeed, it was instructive that MAS itself said in its statement that its policy stance "is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring towards sustainable growth" (emphasis added).
In layman terms, what this all means is that people should be prepared for higher inflation for the next few years as the economy restructures. There will be pain as prices rise to reflect higher wages of people in the services industry and other sectors where companies are unable to find foreign workers to fill positions.
- http://www.singapolitics.sg/views/new-norm-tepid-growth-and-inflation
:p
