Why is everything so darn expensive?

Check Your Shopping Habits

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If we believe that inflation is likely to remain high for the foreseeable future, then we have to change our habits. Whenever we buy something, we exert pressure on the supply chain and use up a product or a service. If we end up not using the things we buy – for example, that cheap top from a fashion  app that we were not 100 per cent in love with – we would have wasted manpower and raw materials that are irreplaceable.

Buying less and making sure that we use whatever we’ve bought is one thing to do. Reducing food wastage, by going for fewer all-you-can-eat deals for example, is another. Consciously investing in quality so we cast out fewer things sounds boring, but is absolutely crucial.

In our own ways, we can help bring inflation under control. For instance, I have asked my friends to avoid over-ordering  whenever we meet up for dinners. It’s no longer a matter of, “Why can’t I order whatever I want? I can afford to pay”– it’s about knowing that every minute decision we make has a wider economic impact.

“I never bothered with leftovers, and if we can’t finish the food we ordered when we eat out, so be it,” says Lesley Goh, a designer at a tech start-up. “But these days, I would at least pack the meat and try to reuse it in fried rice or as a sandwich filling. This way, I save myself from paying $12 for my next meal.”

Are Your Savings Keeping Up With Inflation?

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When it comes to interest rates, it’s a love-hate relationship, depending on who you ask. Rising rates may be bad news for those planning to take bank loans, but they are great for those who put their money in fixed deposits.

Personally, I’m not a fan of locking up a substantial amount of money in the bank, even if it’s just for a year, because I value liquidity and want to be able to access my funds as and when I want to. And while interest rates in savings schemes may be better than what they used to be, they are still some ways from keeping up with the rising costs of inflation. With the markets taking a beating, a guaranteed return of at least 2.6 percent is still better than a loss.

There are alternatives that you may consider, such as cash management accounts. These are typically  accounts offered by financial institutions like brokerages or investment platforms that invest money saved with them in money market funds. These provide comparable or higher returns without any lock-ins, but come with a small level risk. For instance, you  may not be guaranteed a return of your capital (especially if you take your money out after just a month or so). I have been stashing my spare cash in a “savings app” that deals with stablecoins – it promises a return of up to 5.65 per cent a year.

Before committing to any kind of savings plan, it is important to ask if you can afford to not have access to your capital for that lock-in period, or if you’re just better off using that money to pay off an existing loan. After all, interest saved is also money earned.

No Choice But To Invest

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Does it then make sense to invest during an inflation? I asked Ten Hui Yu, an associate director at financial advisory firm Finexis advisory. She is also my co-host on the podcast Good Girls Talk About Money.

“With stocks and unit trust prices at a low, now is the time for you to enter the market at a discount,” says Hui Yu. She believes that investors will be rewarded for their diligence when the market finally recovers. “The principle of dollar-cost averaging means you invest a fixed sum of money at regular intervals. This  maximises your chances of paying a lower average price, and minimises your losses over time.”

The one thing we definitely agree on is that you should not hang on to your cash. “That $5 coffee today is going to cost almost $10 in a decade, given that inflation is projected to rise by 7 per cent,” explains Hui Yu. “If you sit on your money and do nothing, you’re allowing yourself to get robbed by inflation.”

Parting Shot

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Being proactive with your finances is the smartest thing to do during an inflation. Whether it’s changing the way you spend, researching how to grow your savings, or being more aggressive in your investment strategy, the one thing we don’t want is to let fear take over and do nothing.

Deborah Tan-Pink is a communications director at Bitstamp and co-host of the podcast Good Girls Talk About Money. You can find her podcast on Apple Podcasts and Spotify.

WHAT'S UP WITH INFLATION?

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Irvin Seah, senior economist at DBS Bank, tells us more about the rising cost of living in Singapore:

What are the main causes of Singapore’s headline and core inflation respectively?

A confluence of factors, such as the strong recovery from the Covid-19 crisis resulting in a surge in global demand, and the Ukraine war, has prompted sharp spikes in global energy, commodity and food prices. These in turn are being passed through into the Singapore economy. Domestic inflationary pressure is also rising on the back of strong pent- up demand and higher business costs, hence exacerbating upward pressure on both headline and core inflation.

 

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How much will global inflation affect the cost of living in Singapore?

Global inflation certainly has a huge impact on the cost of living in Singapore. About 60-70 per cent of local consumption and inputs for production in Singapore are in fact imported. Such imports would include perishable food items, cars, fuel, consumer goods, intermediate inputs for production in manufacturing plants, and so on. While a strong SGD would help to offset the rising cost of imports, the Monetary Authority of Singapore (MAS) will also have to balance this against the adverse effect of a strong currency on export performance – a stronger SGD will make Singapore’s exports less competitive.

 

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How much is the cost of consumer goods projected to rise here in the next six months or so?

On an aggregated basis, we expect headline CPI inflation to average at about 7 per cent from September 2022 to February 2023. Although inflation is expected to ease in the coming months, the headline number is still about 3.5 times higher than the historical average of about 2 per cent, and price level is still significantly higher compared to the same period last year. Plus, GST will be raised by 1 percentage point in 2023, which will add to the existing inflationary pressure.

 

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Will there be a reprieve any time soon?

Higher than usual inflation is here to stay, at least for the next one to two years, unless a recession kicks in – but that is another risk factor that policymakers are trying to avert. The ideal outcome would be for inflation to gradually ease towards a normalised trend path in the coming three to five years.

Additional reporting by Chelsia Tan