INFLATION IN SINGAPORE (Targeted rate)

Encik Mansor Haji Sukaimi asked the Minister for Trade and Industry what is the targeted rate of inflation in Singapore for the next 12 months; what factors will determine the rate of inflation in Singapore during that period; and what Singaporeans should do to ensure that they will succeed in maintaining a low inflation rate.

The Minister for Trade and Industry (Mr Goh Chok Tong): Mr Speaker, Sir, we do not target to achieve inflation in Singapore. We aim to minimize it. Ours is an open economy and inflation is mostly imported. The Government will, however, continue to keep domestic inflation down by improving productivity in the economy. Our inflation rate for this year is estimated to be around 9%. Barring any major oil price increase in the next 12 months, our inflation rate in 1981 should be lower than this year's.

Further oil price increase is a major factor that will determine the rate of inflation in Singapore in 1981. Higher oil prices will mean that we have to pay more for our oil and other imports. Our inflation will therefore depend on the action of OPEC and the consequences of the Iraq-Iran war in the next 12 months. On the domestic front, higher cost of housing construction due to higher oil and labour costs will affect the level of inflation.

If the effect of any price increase in oil imports is to be ameliorated in the next 12 months, there must be a conscious effort by Singaporeans to conserve energy, thereby reducing our need for oil imports. They must also be more productive and use energy-saving devices so that higher oil import and wage costs are offset by productivity increases. As consumers, they must spend wisely and not excessively. With these efforts, we should be able to minimize the rate of increase in our inflation in the next 12 months.

Encik Mansor Haji Sukaimi: Sir, possibly, one effective way of combatting inflation is to help Singaporeans to increase their earning capacity. How would the Minister propose to help Singaporeans, especially pensioners who cannot earn enough wages, who cannot be trained, and who will not be spared from the effects of inflation?

Mr Goh Chok Tong: Mr Speaker, Sir, I do not quite see the rationale of that question, i.e. increasing the earning capacity of people to combat inflation. I do not see the direct linkage or cause of inflation in that question.

Encik Mansor Haji Sukaimi: I am no economist, Mr Speaker, Sir. The Minister should be in a better position to clarify this. But let me explain. I go with the layman's understanding that if a person is able to earn more wages, he would possibly be able to withstand the effects of inflation. Therefore, I thought it would be logical for Singapore to use this as the main rationale rather than, for example, in some countries where they used to dole out subsidies or financial assistance. In so far as the healthy workers are concerned, it would be possible to train them with new and better skills so that they can take on jobs which can provide better wages. But in certain categories, for example, pensioners, we really cannot use this rationale of helping them to earn more wages. But, at the same time, we do not practise the giving out of doles or subsidies to pensioners. So how do we solve the problem of such a category of Singaporeans?

Mr Goh Chok Tong: Mr Speaker, Sir, I am now clear as to the import of the question and, that is, the effect of inflation on people who are unable to increase their earning capacity. That is quite different from the causes of inflation. If a person is a pensioner, it is true that he will suffer the impact of inflation and, frankly, there is no way in which the pensioner can be compensated for such pernicious effects of inflation.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, does the Hon. Minister think that the explanation for inflation given by Milton Friedman is applicable to Singapore?

Mr Goh Chok Tong: Mr Speaker, Sir, I do not know which part of Milton Friedman's arguments the Member was referring to because while in Singapore he touched on many things. But, in essence, if the Member is talking about the free-play of market forces as a means to check inflation, and that is generally the thrust of Dr Friedman's arguments, then we think that is applicable in Singapore. We are trying to use market forces to improve efficiency in the economy so that cost increases as a result of wage-cost increases and oil price increases will be offset by productivity increases.

Dr Augustine Tan: Mr Speaker, Sir, I am aware that Milton Friedman said many things, but is the Minister not aware that Milton Friedman blamed excessive supply of money as the basic cause of inflation? And does he not think that such a factor is also operative in Singapore at the moment?

Mr Goh Chok Tong: Mr Speaker, Sir, in theory, I think excessive supply of money is a cause of inflation. Whether or not money supply is excessive in Singapore is best seen in the inflation rate which we have in Singapore, and I think an inflation rate of 9%, taking into account factors which have caused price increases, such as the oil price increase, would seem to suggest that money supply in Singapore has not been excessive.

Dr Augustine Tan: Sir, why does the Hon. Minister think that imported inflation is inevitable when we can change the exchange rate, i.e. allow the currency to float upwards and thereby mitigate the effects of imported inflation?

Mr Goh Chok Tong: Mr Speaker, Sir, it is true that one can mitigate the impact of imported inflation by allowing the currency to appreciate vis-a-vis currencies outside Singapore. But there are also other implications of an increase in the exchange rate and, that is, it would affect the exports.

Dr Augustine Tan: Sir, is the Hon. Minister not aware that by keeping the value of Singapore's currency down, this will lead to an increase in money supply and, at the same time, allow import prices to be filtered into the domestic economy and, on both counts, raise the rate of inflation?

Mr Goh Chok Tong: Mr Speaker, Sir, I am fully aware of the implications as mentioned by the hon. Member for Whampoa. However, the exchange rate determination comes under the Ministry of Finance.