facebookStill Not Investing? You’re Already Losing Money to Inflation


Still Not Investing? You’re Already Losing Money to Inflation

profileJoel Koh

Did you know that you’re already losing money due to inflation if you’re not invested?

That’s right.

With rising costs, our hard-earned cash is actually losing its value over time.

As if to add salt to our financial wounds, the impending GST hike from 7% to 9% means that we will be paying much more for goods and services per dollar than ever before…

So here’s what you need to know about rising costs and how you can hedge against them.

TL;DR: Rising Inflation Singapore And What You Can Do About It

Source: Trading Economics

Overall inflation or the Consumer Price Index (CPI) inflation rose to 4.3% y-o-y in February 2022, exceeding economists’ median forecast of 4.2% and making it the fastest increase in nine years.

The Monetary Authority of Singapore (MAS) Core Inflation in February 2022 rose 2.2% year on year (y-o-y), just slightly down from 2.4% y-o-y in January 2022.

Starting from 1 Jan 2023, GST is also set to increase from 7% to 8%, and then from 8% to 9% from 1 Jan 2024.

In other words, we have to deal with both rapid inflation AND a 2% expenditure increase in most of the goods and services we consume.

Unless you’re consistently getting a pay raise that outweighs rising costs of living, you’ll see a decrease in your purchasing power as the years go by.

Luckily, not all hope is lost as you can start investing your money to help tackle this problem. And it’s really not as difficult as it seems!

Jump to:

What is Inflation?

In Singapore’s context, inflation is a measure of the rate at which the prices levels of goods and services in the economy increases over time. This causes a decrease in purchasing power of currency as more money is needed to buy the same product now compared to the past.

Here’s how this works. For example, back in the 90s, chicken rice used to only cost $1 per plate and $10 could buy you 10 plates of chicken rice.

Source: mila0506 | Flickr

Fast forward to today, chicken rice now costs about $3.50 per plate. This means that the same $10 can only buy you slightly less than three plates of chicken rice today.

But, price levels of goods and services do not always go up. Sometimes it may go down. This is called deflation.

When deflation happens, the general prices levels of goods and services decrease over time. This causes an increase in purchasing power of the currency, as less money is needed to buy the same product now compared to the past.

For instance, the price of laptops has fallen steadily over the years. Back in 1991, an Apple Macintosh PowerBook would set you back US$4,247 (S$5,752) (inflation-adjusted price).

Today, you can get a very decent laptop that is a lot more powerful compared to the Apple Macintosh PowerBook for about five times less.

There are two main causes of inflation.

  • Cost-Push Inflation: Cost-push inflation happens when the prices of goods and services increase when production costs (e.g. raw materials, transportation, and salaries) go up.
  • Demand-Pull Inflation: There is also demand-pull inflation which happens when there is a huge increase in demand for certain goods and services. Inflation occurs as people are more than willing to pay a higher price for the product which drives the prices up. (e.g. Bak Kwa during Chinese New Year)

Inflation matters when it comes to your personal finance.

You’ll need it to evaluate if your investments are doing well enough to beat the inflation rate and effectively plan how much you need for your retirement in the future.

How is Inflation in Singapore Measured?

In Singapore, inflation is generally measured using the CPI: a measure of overall consumer price inflation.

Consumer Price Index (CPI) Singapore (February 2022)

The CPI is a measure of general price levels in Singapore and is released every month by the Singapore Department of Statistics (DOS).

According to MAS here is how the CPI is calculated:

For longer periods, the CPI is derived by averaging the monthly indices. For example, the yearly CPI is derived by taking a simple average of the 12 months’ indices for the year. To compute month-on-month change, the difference between the CPI for the specific month and that for the preceding month expressed in percentage term is used.

This measures the change in average prices between the two months and serves as a useful short-term indicator of price movement.

To measure the year-on-year change, the CPI for the specific month is compared with that for the same month of preceding year. Likewise, the annual inflation rate for a specific year is computed by comparing the average for the 12 monthly indices with that for the preceding year. For example the CPI for February 2022 is benchmarked agasinst the CPI for February 2021.

Source: Singapore Department of Statistics

As such, the latest Consumer Price Index (CPI) for February 2022 rose 4.3 per cent year on year (i.e. compared to February 2021).

CPI Categories

It mainly measures consumption expenditure.

To be more specific, the CPI measures the weighted average price of a fixed basket of goods and services consumed by an average household in Singapore headed by Singapore Citizens or Permanent Residents (PRs).

The basket is broken down into 10 expenditure categories based largely on the Classification of Individual Consumption According to Purpose (COICOP) while the weights of these items are determined by the expenditure pattern of an average household in Singapore.

Source: Singapore Department of Statistics

The data source is quite comprehensive as the prices for about 6,800 brands/varieties of goods and services across 4,200 outlets around Singapore are surveyed for the computation of the CPI basket.

However, non-consumption expenditures like buying housing, loan repayments, income taxes, stocks, and other financial instruments are not included.

Although, the cost of consuming services from housing is included in the computation of CPI. This is estimated through a survey of rental prices.

Another way to look at this will be through the lens of purchasing power of the Singapore dollar.

To illustrate this, I will use MAS’s Goods & Services Inflation Calculator.

Think of inflation as a reverse interest rate.

For example, a basket of goods and services (CPI overall category) that would cost you S$1,000.00 in 2009 will cost you S$1,176.40 in 2019 (base year).

In other words, the value of your money has ‘shrunk’ by about -17.64% in ten years.

Basket of Goods & Services (Overall CPI) Cost $1,000 in Year:Cost in 2019 (Base Year)*Cumulative Rate of InflationCompound Average Annual Rate of Inflation
1989 (30 Years Ago)
1994 (25 Years Ago)S$1,42942.90%1.44%
1999 (20 Years Ago)S$1,361.6036.16%1.56%
2004 (15 Years Ago)S$1,306.9030.69%
2009 (10 Years Ago)S$1,176.4017.64%
2014 (5 Years Ago)S$1,005.200.52%0.10%

Monetary Authority of Singapore (MAS) Core Inflation Rate Singapore (February 2022)

In addition, MAS, like many central banks around the world, monitors the core inflation rate which is a measure of persistent and generalised price movements instead of one-off price movements in specific categories.

In Singapore, the MAS core inflation rate takes into account the CPI minus the categories of owning private transportation (e.g. car) and accommodation (i.e. rental). These categories are excluded as they are volatile and significantly affected by Government policies (i.e. Certificate of Entitlement (COE) prices for the private transport category).

This went up 2.2 per cent year on year in Singapore.

How Does Inflation Rate Affect You?

Although the CPI is a good gauge of consumer price inflation in general it may not be totally helpful for you as your spending would most likely differ from the average family in Singapore.

For example, the latest CPI for February 2022 rose 4.3 per cent year on year (i.e. compared to February 2021).

But, the increase may feel a lot heavier on you if the majority of your budget is spent on transport if you happen to have a family with young children that you ferry around often.

Source: Singapore Department of Statistics

When it comes to budgeting for you and your family’s needs or your retirement, the headline inflation rate (CPI) is not what you should be focusing on.

Rather, you should look at the latest CPI reports and focus on the categories that matter to you.

For example, let’s say you want to plan for your retirement. The Health Care category should have more importance due to the rising costs of healthcare and Singaporeans living longer.

What Can You Do to Hedge Against Inflation?

At the risk of sounding entitled, a good way to hedge against inflation would be to ensure that you get a healthy pay raise every year.

Generally, any increment less than the CPI for the year would mean that you are technically getting a pay cut as your purchasing power has shrunk due to inflation.

Start Investing

Another way is to start investing to beat inflation.

Even if you’re a lazy bum who doesn’t want to go too in-depth into stocks, you should consider Robo-advisors such as Endowus, Syfe and Stashaway to help you manage your investments for a small fee.

At the very least, you’ll be earning much higher interest rates than having your cash sit in a savings account with a base interest of 0.05%.

But just a disclaimer, when you invest, you bear the risk of losing your capital. As such, we would recommend that you read up and fully understand what you are getting into before you start investing.

These guides should help:

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice to buy or sell any investment product. ​Readers should always do their own due diligence and consider their financial goals before investing.


About Joel Koh
History student turned writer at Seedly. Before you ask, not a teacher. I hope to help people make better financial decisions and not let money control them.
You can contribute your thoughts like Joel Koh here.

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