The Major Causes Of Inflation In Singapore Essay

Introduction

First of wholly, we need to happen out what is rising prices. Inflation is defined as a sustained addition in the general degree of monetary values for goods and services. It is measured as an one-year per centum addition. As rising prices rises, every lb you own buys a smaller per centum of a good or service. The value of a lb does non remain changeless when there is rising prices. The value of a lb is observed in footings of buying power, which is the existent, touchable goods that money can purchase. When rising prices goes up, there is a diminution in the buying power of money. For illustration, if the rising prices rate is 2 % yearly, so theoretically a 1 battalion of gum will be 1.02 in a twelvemonth. After rising prices, your lb ca n’t purchase the same goods it could beforehand.

There are several fluctuations on rising prices:

Deflation is when the general degree of monetary values is falling. This is the antonym of rising prices.

Hyperinflation is remarkably rapid rising prices. In utmost instances, this can take to the dislocation of a state ‘s pecuniary system. For illustration, one of the most noteworthy illustrations of hyperinflation occurred in Germany in 1923, when monetary values rose 2,500 % in one month!

Stagflation is the combination of high unemployment and economic stagnancy with rising prices. This happened in industrialised states during the seventiess, when a bad economic system was combined with OPEC raising oil monetary values

Findingss:

Singapore was founded as a British trading settlement in 1819. It joined the Malayan Federation in 1963 but separated two old ages subsequently and became independent. Singapore later became one of the universe ‘s most comfortable states with strong international trading links ( its port is one of the universe ‘s busiest in footings of tunnage handled ) and with per capita GDP equal to that of the taking states of Western Europe.

Singapore has a extremely developed and successful free-market economic system. It enjoys a unusually unfastened and corruption-free environment, stable monetary values, and a per capita GDP equal to that of the four largest West European states. The economic system depends to a great extent on exports, peculiarly in consumer electronics and information engineering merchandises. It was difficult hit from 2001-03 by the planetary recession, by the slack in the engineering sector, and by an eruption of Severe Acute Respiratory Syndrome ( SARS ) in 2003, which curbed touristry and consumer disbursement.

Fiscal stimulation, low involvement rates, a rush in exports, and internal flexibleness led to vigorous growing in 2004-07 with existent GDP growing averaging 7 % yearly. The authorities hopes to set up a new growing way that will be less vulnerable to the planetary demand rhythm for information engineering merchandises – it has attracted major investings in pharmaceuticals and medical engineering production – and will go on attempts to set up Singapore as Southeast Asia ‘s fiscal and hi-tech hub. Singapore ‘s one-year rising prices rate was at 6.7 % in March – the highest since 1982 – and the democracy is now paying a high monetary value in going a planetary metropolis of all right life.

Causes of rising prices:

Cost Push Inflation

Cost-push rising prices occurs when concerns respond to lifting production costs, by raising monetary values in order to keep their net income borders. There are many grounds why costs might lift:

Rising imported natural stuffs costs possibly caused by rising prices in states that are to a great extent dependent on exports of these trade goods or instead by a autumn in the value of the money in the foreign exchange markets which increases the monetary value of imported inputs. A good illustration of cost push rising prices was the determination by British Gas and other energy providers to raise well the monetary values for gas and electricity that it charges to domestic and industrial consumers at assorted points during 2005 and 2006.

Rising labor costs – caused by pay additions which exceed any betterment in productivity.A This cause is of import in those industries which are ‘labour-intensive ‘ . Firms may make up one’s mind non to go through these higher costs onto their clients ( they may be able to accomplish some cost nest eggs in other countries of the concern ) but in the long tally, pay rising prices tends to travel closely with monetary value rising prices because there are bounds to the extent to which any concern can absorb higher pay disbursals.

Higher indirect revenue enhancements imposed by the authorities – for illustration a rise in the rate of excise responsibility on intoxicant and coffin nails, an addition in fuel responsibilities or possibly a rise in the standard rate of Value Added Tax or an extension to the scope of merchandises to which VAT is applied. These revenue enhancements are levied on manufacturers ( providers ) who, depending on the monetary value snap of demand and supply for their merchandises, can choose to go through on the load of the revenue enhancement onto consumers. For illustration, if the authorities was to take to impose a new revenue enhancement on air power fuel, so this would lend to a rise in cost-push rising prices.

Cost-push rising prices can be illustrated by an inward displacement of the short tally aggregate supply curve. This is shown in the diagram below. Ceteris paribus, a autumn in SRAS causes a contraction of existent national end product together with a rise in the general degree of monetary values.

Average net incomes comprise basic wage + income from overtime payments, productiveness fillips, profit-related wage and other addendums to earned income

Productivity measures end product per individual employed, or end product per individual hr. A rise in productiveness helps to maintain unit costs down. However, if net incomes to people in work are lifting faster than productiveness, so unit labor costs will increase

The growing of unit labor costs is a cardinal determiner of rising prices in the average term. Extra force per unit area on monetary values comes from higher import monetary values, trade good monetary values ( e.g. oil, Cu and aluminum ) and besides the impact of indirect revenue enhancements such as VAT and excise responsibilities.

Monetary values besides increase when concerns decide to increase their net income borders. They are more likely to make this during the upswing stage of the economic rhythm.

The major causes of rising prices and consequence in Singapore:

Singapore ‘s rising prices rate is dual that of Malaysia, it is higher than Hong Kong and Australia. While rising prices is by and large higher around the universe, Singapore ‘s rising prices is far higher than the norm for several grounds, here are the chief 1s:

One million people added to Singapore ‘s population in recent old ages doing the population to lift from 3.7M to 4.6M

An overheated economic system that grew by 7 % per annum.

GST hiking, conveyance hiking, public-service corporations hike, kindergarten fee hiking etc etc.

A strong overheating economic system that grew by 7 % yearly for the past four old ages ; and,

An unfastened door in-migration ( the highest inflow rate in the universe ) that brought in a million aliens and pushed the population to about 4.7 million.

This entry shows Singapore ‘s the one-year per centum alteration in consumer monetary values compared with the old twelvemonth ‘s consumer monetary values:

Inflation rate ( consumer monetary values ) : 2.1 % ( 2007 est. )

Year

Inflation rate ( consumer monetary values )

Rank

Percentage Change

Date of Information

2003

-.40 %

209

2002 est.

2004

.50 %

203

-225.00 %

2003 est.

2005

1.70 %

45

240.00 %

2004 est.

2006

.40 %

13

-76.47 %

2005 est.

2007

1.00 %

17

150.00 %

2006 est.

2008

2.10 %

43

110.00 %

2007 est.

Wayss to diminish the Inflation:

Monetary PolicyA

Increased involvement rates will assist cut down the growing of Aggregate Demand in the economic system. The slower growing will so take to lower rising prices. Higher involvement rates cut down consumer disbursement because:

increased involvement rates increase the cost of adoption, cut downing disbursement

Increased involvement rates make it more attractive to salvage money

Increased involvement rates cut down the disposable income of those with mortgages

2. Supply Side Policies

Supply side policies aim to increase long term fight and productiveness. For illustration, denationalization and deregulating were hope to do houses more productive. Therefore, in the long tally supply side policies can assist cut down inflationary force per unit areas. However, supply side policies work really much in the long term. They can non be used to cut down sudden additions in the rising prices rate

3. Fiscal PolicyA

This is another demand side policy, similar in consequence to Monetary Policy. Fiscal policy involves the authorities altering revenue enhancement and disbursement degrees, in order to act upon the degree of Aggregate Demand. To cut down inflationary force per unit areas the authorities can increase revenue enhancement and cut down authorities disbursement. This will cut down Aggregate Demand.

4. Exchange Rate Policy

Policy of authorities towards the degree of the exchange rate of its currency. It may desire to act upon the exchange rate by utilizing its gold and foreign currency militias held by its cardinal bank to purchase and sell its currency. It can besides utilize involvement rates ( pecuniary policy ) to change the value of the currency.

This study illustrates 2 interesting tabular arraies:

This below tabular array shows the rank of states which has the most rising prices. This entry furnishes the one-year per centum alteration in consumer monetary values compared with the old twelvemonth ‘s consumer monetary values.

This entry shows the one-year per centum alteration in consumer monetary values compared with the old twelvemonth ‘s consumer monetary values.

Drumhead

In today ‘s economic system, alterations in aggregative demand lead to alterations in alterations in monetary values every bit good as end product. In fact, because of the inflexibleness of rewards, monetary values may be lifting even though the economic system still has high unemployment and unutilized capacity.

Inflation occurs when the general degree of monetary values is lifting ( and deflation occurs when they are by and large falling ) . Today, we calculate rising prices by utilizing “ monetary value indexes ” weighted norms of the monetary values of 1000s of single merchandises. The most of import monetary value index is the consumer monetary value index, which measures the cost of a market basket of consumer goods and services relative to the cost of that package during a peculiar base twelvemonth.

Inflation affects the economic system in two ways: by redistributing income and wealth and by altering the degree and form of production. Inflation and deflations are seldom of the balanced and awaited type.

Mentions:

Parkin M. , 2003, Microeconomics, 6th edition, Pearson Education, USA

Sloman J. , 2004, Necessities of Economics, 3rd edition, Pearson Education, England

Samuelson.A and William D, Macroeconomics, 13th edition, McGraw-Hill book company, USA

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