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5.2% Inflation In March 2012

>> Sunday, April 29, 2012

Singapore's inflation rate rose to 5.2 per cent on-year in March 2012, from 4.6 per cent the previous month. MAS has also projected that inflation will likely remain elevated over the next few months, before easing gradually in the second half of this year.

In a Labor Day message, someone mentioned that wages should be kept ahead of inflation and must rise faster.

While it is a simple logic for the immediate solution, the equation is not uni directional and problem solved. It is a vicious loop with a exponential feedback effect.

Bus drivers have recently announced a 16% wage hike to "cope with inflation". Nurses and doctors are going to be paid more. Basically, most sectors will be seeing a wage increase if they are capable of giving it.
Property prices have also been on a steep climb, resulting in rising rentals. This will have a significant impact on commercial leases and shop rentals.

I am sure any decent rationale human will know that these increases can not be created out of thin air. It will eventually be passed on to the consumers who are ultimately themselves and the cycle continues.

In my opinion, this solution does not seem to curb inflation but in fact is adding fuel to the fire. Please do not get me wrong that these people do not deserve the pay increase. I fully respect their job and like everyone else, they deserve the market rate of pay for doing their job.

However, I question the rational that they are justifying their increase due to inflation! This additional cost is being transferred to the public and they deserve a better explanation then pushing to "unavoidable" inflation.
If it were due to higher demand for quality services, attracting better talent or to benchmark against other equivalent sector of pay, I will scrutinize the formula but if it is sound, I will not have a reasonable basis to challenge it.

But what is going on here? The people in power's solution to curb inflation is to increase it higher and faster by justifying that inflation is unavoidable?

I hope someone can enlighten me to look at the situation differently as I can bet the last dollar that their expert predictions of lower inflation in the second half of this year is not going to happen. Then please do not publish articles that state it is "unexpected", and have blown economists' forecast out the window. I am saying here and now that inflation is going to stay the same or inch up unless something apart from the current proposed solution is done.

Anyway, regardless, inflation is going to remain high and interest rates in deposits are giving next to nothing. Everyone will need to take a good hard look on achieving a reasonable return on their investments, or else, it is going to be painfully eroded by "unavoidable" inflation.

1 comments: May 1, 2012 at 9:13 AM  

Hi Lau:

You have kindly added recently my blog to your blog list. Its the one called "The Alternative Investor". I have a number of other blogs as well:

Feel free to take a look at these, and if there are any of my blogs you feel are worthwhile, please consider adding them to your blogroll. I will also add your blog to my blogroll of the Alternative Investor blog. Take care! Peter



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