If we ever needed a sign that inflation could be a problem, then Singapore’s MAS has just provided us with one. The country’s de facto central bank, the Monetary Authority of Singapore, has raised slightly the slope of the Singapore dollar nominal effective exchange rate (S$NEER).
This means that the Singapore dollar can effectively rise against a basket of currencies, which could help the country moderate the cost of imports. It is Singapore’s unique way of controlling inflation.
The fact that MAS is mindful about inflation should be a good reason for us to be vigilant, too. We need to be aware that whilst Singapore might be able to control rising prices, it might not be quite as easy for other economies around the world to do the same.
What’s interesting is that this is the first time in nearly three years that MAS has embarked on policy tightening. But whether one policy-tightening move will be enough to cope with external and domestic cost pressures is still an open question.
Let’s not forget that inflation might not be the one-off event that some like to think it is. The problem is that it can fuel price rises elsewhere in the system. As it stands there are some who still maintain that what we are currently experiencing is specific to the reopening of the global economy….
…. Consequently, it is only natural to expect bottlenecks and supply-chain disruptions to prevent supply of goods and services from adequately satisfying surging demand.
But here’s the thing: should we ever be happy that inflation, even if it is just one or two per cent, eroding the value of our savings? We might think that an inflation rate of 2% is harmless enough. After all, the fact that something that cost $100 today could cost $102 in a year’s time is kind of inconsequential. It is manageabe.
But it can become a problem when $100,000 in our bank account will only be worth $50,000 after 30 years. Put another way, what we have carefully put away during our working life for our retirement could be gnawed away by inflation just when we might need it most.
What we need to remember is that inflation will only a problem if we choose to ignore it. But if we invest properly in inflation-beating assets, we shouldn’t have anything to worry about.
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David does not own shares in any of the companies mentioned.