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Singapore’s inflation is at a 10-year high.
The city-state’s inflation rate has been on the rise in recent years, and many companies are struggling to keep up.
While healthy levels of inflation are good, high inflation can be challenging for both individuals and businesses, especially those that face financial difficulties.
How can companies manage this inflation storm with the right measures to tide over the period?
In this blog post, we will discuss how businesses can prepare for rising inflation in Singapore.
We will cover topics such as price hikes, wage stagnation, and the impact of inflation on different industries. If you are a business owner in Singapore, it is essential that you read this blog post!
What is Inflation?
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. There are consumer price increases across industries and sectors.
For example, a carton of milk 5 years ago might cost S$0.70 cheaper than it does today.
What Are the Disadvantages of Rising Inflation in Singapore?
Rising inflation well over moderate levels can lead to a set of problems.
Here are some examples:
Reduces the Purchasing Power of Money
One primary problem is a decrease in the purchasing power of money, as people need more money to buy the same amount of goods and services.
Price Hikes for Businesses
Inflation can also cause problems for companies, as it increases the cost of doing business.
This is particularly tough because increasing the prices of their goods and services can lead to a loss of market share since consumers tend to go for more affordable prices.
Wage Stagnation
Inflation can also lead to wage stagnation, which is when wages do not keep up with the rising cost of living. This can make it difficult for businesses to attract and retain talent.
Related Read: Why Businesses Should Expand into Singapore During the Pandemic »
Why is There Rising Inflation in Singapore?
Inflation in Singapore can be credited to a few reasons around external and domestic factors:
The Russia-Ukraine War
The ongoing war between Russia and Ukraine has caused a number of problems.
They include:
- Worsening supply and demand tensions
- Hurting consumer outlook
- Unleashing crashing waves of economic stability
- Posing a risk to global economic growth
Russia is a significant supplier of gas, metals, oils, fertiliser, and Ukraine wheat and corn to countries worldwide, including Singapore.
A reduction in these supplies has led to higher prices for these commodities.
Ironically enough, Russia has benefited from the war, earning almost $100 billion from oil and gas exports in the first 3 months of the war.
Supply Chain Bottlenecks Caused by COVID-19
If you’ve noticed the prices of food going up, from eggs to chicken, it’s partly because of supply chain issues.
Singapore imports over 90% of its food from overseas. These supply chain woes have contributed to increased freight rates and the cost of imports:
- Production issues at farms and factories
- Shipping container shortages
- Port closures
Coupled with the reduced supplies from Russia and Ukraine, these factors have led to an explosive reaction.
Extreme Weather Events
Natural disasters can play a part in driving up international food commodity prices, like floods, and warmer weather.
Higher Energy Prices
An increase in energy prices can also lead to higher food production expenses. For example, natural gas is an essential part of fertilisers.
Global Raw Material Shortages
There has been a worldwide chip shortage since early 2021. This was a result of unexpected pandemic-driven demand from some industries, like smartphones and computers.
Long lead times and complicated multinational supply chains have also contributed to this chip shortage, which has, in turn, led to the increase in prices of imported consumer products.
Rising Labour Costs Due to Border Curbs
COVID-19 border curbs have limited the inflow of foreign manpower and caused salary increases.
As a result, it has also led to an increase in services, like that of the food and beverage (F&B) industry.
Robust Domestic Demand
Despite various property cooling measures that the Singapore government has introduced, domestic and foreign demand for the local property market continues to support accommodation inflation.
This is the same for the certificate of entitlement (COE) premiums for the auto market, which has led to transport inflation.
The exit of retailers
When a few electricity retailers from the Open Electricity Market (OEM) made their sudden exit last year, it left many households with more expensive electricity bills.
This is because they were sent back to the grid operator SP Group. Although they can still opt to switch to other retailers, climbing fuel costs and electricity prices have led to increased rates everywhere.
Related Read: 10 Recession-Proof Business Ideas »
How Can Companies Protect Themselves Against Rising Inflation?
In order to prepare for rising inflation in Singapore, companies need to be aware of the factors that are contributing to it.
Invest in Employee Development Programmes
You may also want to invest in training and development programmes to help your employees stay ahead of the curve. This can help against wage stagnation.
Adopt Digital Technologies and Outsource
Face high labour costs?
You can consider automating certain tasks, which can help to reduce the need for human labour.
Consider adopting digital technologies that can help to streamline processes, or outsourcing roles as well, which may be more affordable than hiring someone in-house.
Related Read: Singapore: The Digital Capital of Asia »
Find More Affordable Raw Material Sources or Increase Production Efficiency
Another factor that contributes to inflation is the cost of raw materials. If the cost of raw materials goes up, companies will need to raise prices in order to cover their costs.
Companies can offset this by finding more affordable sources of raw materials or by using more efficient production methods.
Find Ways to Boost Production Capacity
Inflation can also be caused by an increase in demand for goods and services. This can lead to companies raising prices in order to meet the increased demand.
To avoid this, companies need to find ways to increase their production capacity.
Digitalisation is also a major driver of inflation. As more and more companies move to digital platforms, the demand for goods and services increases. This leads to higher prices as companies compete for customers.
Businesses in Singapore Can Take Measures to Safely Mitigate Inflation Risks
Inflation is a major challenge for companies in Singapore, but there are ways to address it.
By being aware of the factors that contribute to inflation, companies can find ways to offset the impact.
FAQs
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