Turbocharged inflation

A term “turbocharged” started a flurry of discussions on inflation, cost of living and GST. Let me try to clarify things (any mistakes are purely due to my limited knowledge or misconceptions).

Consumer Price Index (CPI) – The average cost of a basket of goods, the department of statistics decide what will go into the basket based on sampling/surveying Singaporeans’ consumption habits.

1.      If CPI increases, it’s called inflation

2.      If CPI decreases, it’s called deflation

Some clarifications:

·        Inflation can be decreasing (say 5% last year, 2% this year), it means prices are still increasing but at a slower pace. Across two years prices have increased by (1.05*1.02 = 1.071 (0.71%).

·        Modern economics teaches us that deflation is bad and it is an indicator of recession, well yes however its role has a leading, coincident or lagging indicator is debatable. Moreover, deflation speaks nothing of quality of life.

Many people don’t know (or don’t bother to find out) the specific goods that go into the basket for computation of CPI. For example, if I’m used to drinking T brand beer and recently it increased its prices by 30% and the department of stats chooses to replace T brand beer with S brand beer which only increased its prices by 2% for its computation is that ok then?

https://www.singstat.gov.sg/modules/infographics/-/media/Files/publications/economy/ip-e61.pdf

My personal views:

·        High inflation is a better leading indicator of recession compared to deflation;

·        Deflation is probably a lagging indicator;

·        Though persistent deflation can be a problem, though social demographics have to be taken into consideration for that one;

So with all these measurements etc, what should be the most accurate measurement?

Economists start to bring in terms like real/nominal, wage, cost, etc. All good though one should really just ask him/herself these:

After paying off your bills (incurred from necessity) and other necessary needs, do you have more money in your pocket for your wants now than before? (Can’t allow the spending on wants to begin first as humans, we have unlimited wants).

1.      If yes, good.

2.      If no, has the vouchers do their job so far in shifting the answer to be yes?

I think this helps to answer whether (cost of living – income) is a problem better than letting inflation, GST, cloud the issue.

And in evaluating political parties, we just need to lengthen the time window of the question above to 5 years ago versus now. 

P.S: I understand the constant handing out of vouchers can be seen deeming to human dignity and a better long term solution is to uplift everyone’s income above the cost of living problem. Not going to argue with that though it’s a problem that’s too difficult for me to solve.