Wage growth set to outpace inflation in 2022, though food inflation remains a concern: economists

SINGAPORE – Singaporeans can expect real wage growth this year, with wage increases outpacing inflation, the Ministry of Trade and Industry (MTI) and the Monetary Authority said on Wednesday (25 May). of Singapore (MAS), although private sector experts have said wage growth likely to be uneven across industries.

And while MAS said inflation is likely to peak in the third quarter of the year, economists noted that food inflation remains a concern, especially as countries around the world begin to implement protectionist policies to secure their own food supplies.

They shared their views on MTI’s official quarterly economic figures released on Wednesday May 25, which showed Singapore’s gross domestic product (GDP) grew 3.7% in the first quarter compared to the same period ago. a year.

MTI also kept its full-year 2022 economic forecast between 3% and 5%, but added that it expects growth to be “in the lower half” of that forecast range. in a weaker external environment.

“SALARY GROWTH ABOVE TREND”: MTI CHIEF ECONOMIST

At a press conference on the numbers, MTI and MAS officials noted factors that could exacerbate global inflationary pressures, such as disruption of energy, food and raw material supplies due to the conflict. Russian-Ukrainian.

Still, MTI chief economist Yong Yik Wei said she expects “above-trend wage growth this year” that will outpace inflation.

“Our current expectation is for real wage growth to be positive. In other words, we expect nominal wage growth to continue to outpace inflation this year,” Yong said.

Speaking to TODAY, Ms Selena Ling, head of research and cash strategy at OCBC, said while real wage inflation is possible this year, it is more likely to happen next year, as nominal wages are expected to catch up after two years of stagnation during the pandemic.

Some growing industries, such as infocommunications technology and financial services, can be expected to lead the growth, she added.

But DBS senior economist Irvin Seah had a different view, saying wage growth could instead be driven by languishing sectors. Indeed, any salary increase in growth sectors would be compared to an already higher base.

“But in contrast, the sectors that have been struggling, where wages are already very depressed so far, we will actually see a much bigger jump in terms of wages,” he added.

Overall, however, both economists agree that nominal growth will outpace inflation will vary from sector to sector, taking into account various factors such as labor shortages in the sector and the return of foreign workers.

CHICKEN EXPORT BAN AND IMPACT ON FOOD INFLATION

During the press conference, MTI and MAS were asked about the impact of protectionism on inflationary pressures, particularly in light of Malaysia’s recent announcement that it would ban chicken meat exports from June.

Malaysia is Singapore’s second largest source of chicken meat after Brazil, accounting for 34% of chicken imports here.

Asked about the extent of the impact on Singapore’s food supply and overall inflation, MTI Permanent Secretary Gabriel Lim said it would depend on various factors, such as how long the ban lasts and how quickly with which Singapore is able to switch sources.

He stressed that as a small open economy that depends on imports, it would be impossible to “completely shield Singaporeans” from the impact of such disruptions.

Lim noted that Singapore is not alone in this situation, as many other countries, both developing and developed, have felt the brunt of global supply chain disruptions.

Separately, OCBC’s Ms Ling told TODAY that unlike energy, there are many alternative choices for food, hence the government’s diversification and stockpiling strategy that helps hedge some risks. .

“But combined with energy disruptions and a tight labor market, (food inflation) may be a case of the proverbial straw that breaks the camel’s back,” she said.

Mr Seah expects food prices, exacerbated by Malaysia’s announcement, to continue to be a “persistent” driver of headline inflation.

“I don’t think it’s going to go away anytime soon because (changes) in the food supply don’t happen overnight,” he said.

VERIFICATION OF MONETARY POLICY

During the briefing, MAS Deputy Managing Director Edward Robinson was asked about the adequacy of Singapore’s current monetary policy given rising inflation.

Unlike many central banks, MAS does not set interest rates as a means of implementing monetary policy, but rather manages the value of the Singdollar by buying and selling both local and foreign currencies.

Mr Robinson noted that while this strategy “cannot directly address pure supply shocks”, its intention is to “moderate the pace and persistence of aggregate price increases, which reflect multiple factors at play”.

He added that the MAS will continue to assess the impact of previous monetary tightening moves ahead of the next policy review due in October.

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