The rise in prices Singaporeans have been experiencing over the last few months is a worldwide phenomenon, said Finance Minister Lawrence Wong.
He was giving a ministerial statement in Parliament on Apr 4, 2022, addressing the situation in Singapore with regard to inflation and business costs.
Besides the announcement of implementing support measures such as CDC vouchers and utilities rebates earlier, Minister Wong also explained the macroeconomic situation, adding that global prices were already rising last year.
What are the reasons?
1. Surge in demand
Minister Wong said that major economies like the US and Eurozone have pursued expansionary macro-economic policies to stimulate their economies since the pandemic hit.
Such a scenario contributed to a surge in demand, including for energy, after these economies began to ease up on their Covid restrictions.
2. Demand > Supply
The demand simply outstripped supply. Minister Wong said that supply was unable to catch up with demand and there were also more unexpected gas production outages during this period.
To compound matters, the supply constraints were exacerbated by under-investment in fossil fuel production over the past few years, due in part to the global push for greener sources of power, which have not been able to scale up quickly enough, said Minister Wong.
3. Supply chain pressures
The pandemic also caused continued supply chain pressures such as port congestion and freight capacity constraints.
He added: “Several major advanced economies face labour tightness, which have driven up labour costs and these have in turn passed through to inflation.”
The domino effect
Although there were some hopes at the start of the year that global inflationary pressures would ease as supply situation improved, the ongoing Ukraine War is a major curveball that creates a domino effect.
Minister Wong said that with the war, it is now likely that global inflation will be higher for longer and that we must expect oil and gas prices to remain high for some time.
He noted that while Russian gas is still flowing into Europe, countries such as Germany and Austria are rationing gas, in anticipation of a disruption of supplies from Russia. While US is releasing a record amount of oil from its reserves and exporting LNG to Europe, it may not be sufficient.
“Furthermore, it will take time for any new infrastructure to be built and additional oil and gas production to be brought to market. We must therefore expect oil and gas prices to remain high for some time,” he said.
The effects of the energy market will also have downstream impact on other related sectors such as refineries. This in turn will make chemicals products, from plastics to solvents pricier as these refineries will have to shut operations due to the disruption of Russian gas supply.
Besides energy prices, food prices are also impacted due to the war as both Russian and Ukraine are major exporters of products such as wheat, corn and fertilisers.
“In fact, Ukraine is sometimes called the ‘bread basket of Europe’ With the war, food exports from these countries will be significantly impacted. Fertiliser shortages will also reduce crop yields elsewhere, resulting in a smaller harvest in the coming year,” he added.
To sum it up: the war has contributed to a further spike in inflation experienced around the world.
Minister Wong added: “Inflation in Germany and the US has already risen to nearly 8 per cent, the highest in 40 years. No one can tell how the war in Ukraine will unfold. We all hope that attempts to de- escalate are successful, and a diplomatic solution can be found at the negotiating table. But we must be prepared for a prolonged conflict, or even further escalation, which will cause further supply disruptions and additional inflationary pressures.”
To leave no one behind
To help Singaporeans, Minister Wong said that he will bring forward the implementation of Budget 2022’s measures where possible.
Here’s a good summary:
And here’s a schedule of when you can expect all these help.
As you can see, these measures cover Singaporeans of all segments with the lower-income receiving more help.
Our PAP MPs are also making their voices heard in the House.
As Minister Wong wrote in his op-ed for Petir.sg, the PAP Government will continue to do the right thing for Singapore and Singaporeans.
“The PAP Government will press on with our efforts to work with all stakeholders, and to chart our new way forward together – towards a fairer, greener and more inclusive Singapore,” he wrote.