07 August 2015

What is the inflation rate for Singapore? [reposted]

I was doing some analysis of my investment portfolio to assess how close I was to being financially independent, and started doing some "what-if" of the various planning parameters assumed. One of the important factor was the future "inflation rate".

I've always worked under the impression that 3% was a reasonable number to use, and I wondered how realistic that was? Tweaking the figures between 2% and 4% showed dramatically drastic impacts. It is clearly a very sensitive parameter - i.e. small changes would cause disproportionate outcomes.

I came across one article (http://www.tradingeconomics.com/singapore/inflation-cpi) which mentioned that the average was 2.75% (from 1962 to 2015).

Checking against the Department of Statistics data (http://www.singstat.gov.sg/statistics/browse-by-theme/prices), I obtained the following:

Table 1. Time Series on CPI (2014=100) and Inflation Rate (as at Feb 2015)
Year Consumer Price Index (2014=100) Annual Inflation rate
1980 50.6 8.5
1981 54.7 8.2
1982 56.9 3.9
1983 57.4 1.0
1984 58.9 2.6
1985 59.2 0.5
1986 58.4 -1.4
1987 58.7 0.5
1988 59.6 1.5
1989 61.0 2.3
1990 63.1 3.5
1991 65.2 3.4
1992 66.7 2.2
1993 68.2 2.3
1994 70.3 3.1
1995 71.5 1.7
1996 72.5 1.4
1997 74.0 2.0
1998 73.8 -0.3
1999 73.8 0.0
2000 74.8 1.3
2001 75.6 1.0
2002 75.3 -0.4
2003 75.6 0.5
2004 76.9 1.7
2005 77.3 0.5
2006 78.0 1.0
2007 79.7 2.1
2008 84.9 6.6
2009 85.4 0.6
2010 87.8 2.8
2011 92.5 5.2
2012 96.7 4.6
2013 99.0 2.4
2014 100.0 1.0

Based on the more recent 35 years of history, it seems to average only 2.22%.

Given this, I will revise to 2.5% as my planning norm, and to use 3% only to test the worst-case scenario. Using too high a figure may be unnecessarily inflating the extent needed from my investment portfolio, and inevitably postponing my FIRE. *hmm*

Can I retire now?

For an alternate view on this subject:
Bully the Bear's take on personal inflation

I recall having a bowl of Mee Pok Dry at $1.50 in 1980. Today, a typical bowl would cost $3 to $4. That correlates reasonably with the doubling from the above inflation data.

Of course, there are also other data points that could suggest otherwise - e.g. housing.

If you're looking for a less expensive bowl of Mee Pok Dry, it's still possible to do so at certain places. Here's one from a coffee shop in Teck Whye.


Tacomob said...

Hi Lizardo,

Puh, the dear inflation - the opposite of a gift that keeps on giving.

I personally do take all statistical figures with a pinch of salt, maybe even a shovel full of salt. Especially inflation numbers.

I am sure you read that the officially communicated inflation rate is not comparable as its composition has changed multiple times. For example “hedonic quality adjustment removes any price differential attributed to a change in quality by adding the value of that change to the price of the old item”.

Some guys in the US compute the 'real inflation rate' based on earlier methods of calculation. Their result for the recent years: in the 5 to 10% range.

My subjective observation (Kopi, Chicken Rice and movie tickets for example) is that the inflation rate in Singapore is also higher than officially reported.

Since 2002 the Big Mac has risen in price at nearly three times the rate of the overall inflation. Don't eat Big Macs!

But then we do have to anyhow take a number for our computations, right? Sigh.

Anonymous said...

Big Mac shrink also?

la papillion said...

Hi lizardo,

I'll continue using 3% :) actually it'll be more accurate if you track your yearly spending and see how it rises over the yrs. That personal inflation rate is probably more accurate and customised than the official one. It also means u can adjust ur own inflation rate by choosing your consumption of goods carefully.

Lizardo said...


There is merits in what you say. But as an overall basket of goods, I think there is reasonable basis.


Big Mac shrunken may be a good thing, considering the calorie level! In any case, I also eat a lot less of these fastfood as I age. 8)


That's an interesting observation as well.

GP Blogger said...

Hi lizardo. I agree with others about real inflation being higher than official inflation. Another confounding factor is the MAS policy of using exchange rate to control inflation. In last 10 years sgd has appreciated from 1.7/usd to 1.37/usd. MAS May not be able to continue this strategy forever.. Hence inflation rates May be higher.

Lizardo said...

GP Blogger,

All our raw materials are imported. So imported inflation is best controlled by tackling the exchange rate to manage our inflation. We can't take the approach of monetary policy like printing more money as the US can. We don't command the market. Every approach comes with a tug and pull between trade offs.

If I consider a bowl of noodle from the hawker centre 35 years ago at $1.50 to $2, and today at $3 to $4, it seems to be reflective that the price has doubled, roughly consistent with the inflation data. Conversely, computers and TVs have become cheaper and cheaper, depending on how you look at it. Our basket of goods has also changed over time.

I recall a graduate starting pay was about $1,800 25 years ago. Today, it has doubled to $3,600. So pay has also doubled.

The one item that would be really hard to reconcile is housing.

GP Blogger said...

Hi Lizardo,
The question here is not what is the best way to control the inflation but what will be the inflation rate in the future so that we can plan our investments.
My Point is that it may become unsustainable to continue appreciating the Sing Dollar as it may hamper the competitiveness of Singapore in International market.(translated as lower foreign investments) In that scenario the inflation may rise higher than what it is now.
Nobody has seen the future so I may turn out to be wrong.
So I would rather take a higher rate of inflation while calculating my retirement fund ( may be I am more Kiasu than you).

Lizardo said...

GP Blogger,

Planned with the downside and the upside will take care of itself? That will work.

As I mentioned in my post, this one factor can be very sensitive/significant given the exponential impact over longer time horizon. But if you can work towards the more "kiasu" model, it can only be good.

Thanks for sharing your thoughts. 8)