SINGAPORE : Finance Minister Tharman Shanmugaratnam has warned that Singapore could face another round of inflation if companies increase wages to help workers cope with the higher cost of living today.
He said this will also affect Singapore’s competitiveness and the ability to create jobs.
Mr Tharman was speaking to some 500 workers at the Singapore Industrial and Services Employees’ Union dinner on Wednesday evening.
Higher rice and oil prices have led some Singaporeans to call on the government to set the tone by raising wages.
But Mr Tharman said such short—term measures are not prudent. Instead, he said the government has provided assistance to help Singaporeans deal with the higher cost of living.
These include S$500 million in GST Credits — to help citizens cope with the increased Goods and Services Tax — and special bonuses for senior citizens.
Mr Tharman said Singapore also addresses the problem of inflation mainly through its exchange rate policy. Since the beginning of last year, the Singapore dollar has appreciated by 11 per cent against the US dollar.
However, the minister said there is a limit to how much Singapore can allow its dollar to rise to fight inflation. Mr Tharman said if Singapore dramatically strengthens its dollar to offset the higher prices, it will instead hurt economic growth badly.
He said oil prices have increased by 50 per cent since the start of this year. And it has gone up by about 100 per cent compared to a year go. Food prices globally are now up to 60 per cent higher than one year ago.
Mr Tharman cautioned Singaporeans to brace themselves as oil prices may increase further.
He said, "We expect inflation to be between 5—6 per cent on average this year, with inflation being lower towards the end of the year. We also expect inflation in the second half of the year to be lower because the effects of last July’s GST increase on inflation will wear out.
"However, the recent sharp increase in global oil prices will add pressure on inflation. So we are monitoring this and the impact on inflation closely, and will decide if inflation forecasts for this year need to be revised."
Looking at the global situation, Mr Tharman said the weakness in the US economy could extend into next year. But he maintains that Singapore can expect Gross Domestic Product growth to average between four and six per cent this year.
Mr Tharman said the lasting solution to inflation is to continue with efforts to help workers upgrade their skills and earn better wages.
He said it is also important to help experienced, mature workers stay employed and help home—makers get back to work. This will not only increase the household income, but help improve Singapore’s tight labour market. — CNA/ms