Thread: 30K Investment
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Old 11-01-2013, 02:16 PM   #25
cherry6
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Smile Why CPI might fail to capture the true rate of Inflation in Singapore.

Why CPI might fail to capture the true rate of Inflation in Singapore.
Discussion thread: '30K Investment'
I cannot predict what MAS will do this year or tomorrow.
Maybe it will do the "right thing" and stop printing and inflation maybe go to 0%, or maybe it will jump down the cliff with Abe and friends.
But the M1 and gold price are clear that in the past 12 years, SGD has had a net inflation of 400%. Also note that there are years where MAS kept the money supply relatively constant. Your actual experienced price rise in food may be around 200%-300% due to mitigation by increased food production/efficiency. Property OTOH may have increased more than money supply due to government policy of allowing large influx of foreign labour and restrained housing supply.
I use gold/silver as a barometer because its supply is relatively fixed in the world, unlike housing where more can always be built or food which is consumable and can be affected by weather, increased production.
I don't know what DBU is either [bold font added]
Hi Gamer, tks for reply,
Just to be more technically correct, the M1 inflation rate U stated as 400% (over 12 years) should be corrected to approx say 12.2% on a per annum basis.
The reason why CPI did not capture an inflation rate of 12.2% [used compound interest rate calculator]I believe is because the increase M1 (or M2/3) need not affect the CPI: e.g. it can inflate gold and property prices either locally or abroad: thus the Singapore CPI might not register it depending on the definitions used in ascertaining the CPI (e.g. gold prices might not be represented and the property price used within the CPI might be shifted fr Orchard to somewhere in Sembawang for instance(extreme case))- one should perhaps look at the gini coefficient for the increase inequality although even that is an inadequate marker since it only reflects salary, not property ownership.
Other reasons for the CPI to not hit 12.2% would be because the economy really grew (larger population)- larger money supply is permissible if the population is growing- i.e. exports increase.

Theoretically, in so far that the government expects the average man to tolerate a lower and lower standard of living (e.g. do not include luxury goods, HDB property/ private transportation, HP/ tablets, plasma TVs, short holidays/ leisure activities etc from the CPI, the headline rate of inflation will theoretically never increase).

So yes, compared to gold prices, the supply of SGD has markedly increased and this has been under represented where the SG CPI numbers are concerned.

Also, as scientific progress advances, basic necessities (which make up much of the CPI) might remain readily available (quality isn't defined in the CPI I believe)- yet even though CPI might remain unchanged, the wealth divide might worsen- this has destabilizing effects upon society and can ultimately explode as civil war, revolution.

Guess at the end of the day, parameters like the increase in Money supply, CPI, gini coefficient, personal savings rates (retirement years earned), employment rates, climate change (CO2 levels etc), literacy rates, healthy life years, life expectancy, leisure time etc etc all have to be balanced and taken into consideration when making decisions- and that is why I believe that politicians who are immoral and hanky panky are really not fit for government (at least not at such high pay).

I just googled, DBU= domestic Banking unit according to http://www.bis.org/publ/bppdf/bispap15l.pdf

Just my 2c,
C6.
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Last edited by cherry6; 11-01-2013 at 03:14 PM..
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