Q&A: Growing unemployment, or growing inflation? Which is worse?
Ever since reports of Singapore being the most expensive city (for travellers) came about, my Facebook alerts have been popping up with friends and comments concerned about the inflation/unemployment conundrum. Is a strong Singapore dollar still a good thing if it leads to things being expensive?
One question I found most interesting came in this form, I shall attempt to answer it below:
Various reports have announced that Singapore is now the most expensive city in the world. Appreciation of the Singapore dollar by 40% over the last decade is a contributing factor. Some people may be overjoyed at the strong dollar, but it worries me. If foreign companies find it expensive to operate here, they’ll move abroad. Many have done so. This could affect the livelihood of Singaporeans.
So which is the lesser of two evils? Growing unemployment, or growing inflation?
An excessively strong currency that does not grow with the fundamentals of an economy is dangerous. If an exchange rate is too strong, it would lead to a premature decline in export competitiveness. (Some alleged this to the reason why China is artificially keeping its currency low)
The risks include a spiral effect leading to weakening employment, income and gradual economic instability.
The business landscape in Singapore is indeed changing. With rising wages and rentals (largely due to our land and population constraints), the country has moved from labour intensive businesses, to a knowledge based one. Companies are re-thinking the type of operations they can conduct in Singapore.
The problem of the lesser of two evils is real. Do we accept growing unemployment, or growing inflation? Both are undesirable. Both erodes the citizen’s quality of life, income and spending power.
Our exchange rate policy continues to filter off price increases in items imported from abroad. Monetary Authority of Singapore, Ministry Of Finance and Ministry Of National Development have been working to implement measures to cool the residential and industrial property markets.
The MOF disbursed various rebates and transfer to household and businesses each Budget term to help Singaporeans cope with inflation. GST credits is one example.
Maintaining equilibrium between inflation and unemployment is a tricky task.
We can continue to pursue healthy economic growth with two components: a.) skilled and talented workers, b.) productivity. Both bring in revenue for businesses, and with real profit the company can afford to hire, even pay better. For this reason, you see the Government investing heavily into productivity, technology and skills upgrading.