How should the effects of inflation be managed in future?

SINGAPORE: It is not a good idea for people to rely on government policy to eliminate the effects of inflation, labour economist Walter Theseira said on Wednesday (Feb 15).

“If you use too much government policy here, you're going to kill all the incentives for consumers and businesses to make better decisions about how they spend their money to adapt to inflation,” he said.

He was agreeing with a point Finance Minister Lawrence Wong made in his Budget speech a day earlier, that it is not fiscally sustainable to rely heavily on Government support year after year to cope with inflation. 

Mr Wong, who is also Deputy Prime Minister, had said this after announcing support measures to cope with inflation.

If energy prices that have been rising continue to increase in the long run, for instance, then consumers will have to make more energy-efficient choices, Assoc Prof Theseira said.

These include driving more fuel-efficient vehicles and using the air-conditioning less, he noted.

“It's this adaptation process, which is how you manage inflation sustainably. So, I think the Government should help us transition to a higher inflation environment but it shouldn't eliminate all of the effects. Otherwise that won't be sustainable,” he said.

Associate Professor Theseira from the Singapore University of Social Sciences was speaking during a wide-ranging interview on CNA938, a day after several support measures were announced in Singapore’s Budget 2023.

HELPING LOWER-INCOME CONSUMERS

He noted that some causes of inflation are not temporary.

“The world's undergoing this permanent shift towards higher prices. That's because of the retreat of globalisation, and the increasing scarcity of a lot of resources,” he said.

Lower-income consumers will bear the brunt of the effect of inflation in the years ahead “because they simply don't have the spare cash to deal with these increases,” Assoc Prof Theseira said, adding that helping them involves a two-prong strategy.

One is to give them more handouts and benefits so that the impact of inflation is moderated as much as possible.

“The second big strategy is to try to improve their labour market conditions, so they actually earn their way out of inflation. And I think that's the most important policy in the long run,” he said.

SUPPORT FOR WORKERS

Assoc Prof Theseira said the transitional support that lower-income platform workers are getting as they make increased Central Provident Fund (CPF) contributions is “necessary”.

“Today, many of the platform workers are just barely making ends meet. They don't have that margin to pay the CPF contribution which will eventually go up to 20 per cent of their wages as the employee contribution,” he said.

“We want to ease them into it. We don't want to make their families you know, suddenly plunge them into financial distress overnight,” he added.

Singaporean platform workers who earn S$2,500 or less per month – including from platform work and other employment sources – will be eligible for the scheme if they are required to make CPF contributions or opt in to do so.

Platform workers who are below the age of 30 will have to contribute to their CPF Ordinary and Special Accounts from late 2024, as part of recommendations by the Advisory Committee on Platform Workers that were accepted by the Government.

Assoc Prof Theseira said that the lack of CPF contributions so far has caused two issues – workers ending up with problems in paying for housing, healthcare and retirement later in life, and the increased attractiveness of platform work for some.

“Because they don't have to pay CPF, they find that platform work gives them much better take-home pay than maybe an entry level job with a career path, so I think that's why it was important to put in the CPF contributions, especially for younger workers,” he said.

“We want them to prepare for social needs later in life. We also want them to take our full-time careers if that's a viable option for them.”

BETTER MATCHING OF JOBS AND SKILLS

The new jobs-skills integrators that employers can tap on soon will also help workers, said Professor Lawrence Loh, director at the Centre for Governance & Sustainability at the National University of Singapore’s Business School.

“From the businesses’ and people's perspective, it's good that we have some structural mechanism, a very systematic way in which you can actually discern demands, the needs from businesses, companies and organisations,” he said.

“At the same time, you can influence the supply in terms of developing, honing their skills to match what is exactly needed.”

He added that sometimes, there may be a lack of information particularly on the part of individuals on what kind of new skills will be needed in the future and what new trends may develop in the business space. These jobs-skills integrators will be able to help in this aspect, he said.

They will also work with service providers, including universities, to put up courses that will get individuals ready for the job market.

FERTILITY A “COMPLEX ISSUE”

The increase in the Baby Bonus Cash Gift and paternity leave are likely to make a difference to couples who already have children and are looking to have more, but may not have a big impact on the fertility rate overall, he said.

“Fertility is a pretty complex issue. Globally, the research suggests it's rarely just one policy change that will give you a big bump in fertility (rate),” he said.

In Singapore, among the challenges related to fertility are the falling rate of marriage and the rising age of the first marriage, he said.

“I don't think these changes are going to make people run out and get married tomorrow. On the first problem of falling rates of marriage, I don't really expect that we're going to have an effect.”

Similarly, sociologist Tan Ern Ser from the National University of Singapore told CNA938: “I don't think there'll be a significant increase (in Total Fertility Rate) as a result of these measures. But certainly, they will prevent it from dropping down further.”