Wage growth likely to outstrip inflation in 2022, even as food inflation remains a concern: Economists

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

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

They were sharing their views of MTI’s official quarterly economic figures released on Wednesday (May 25), which showed that Singapore's gross domestic product (GDP) expanded by 3.7 per cent in the first quarter compared with the same period a year ago.

MTI also maintained its full-year economic growth forecast for 2022 at 3 per cent to 5 per cent, but added that it is expecting growth to come in “at the lower half” of this forecast range amid a weaker external environment.

'ABOVE-TREND WAGE GROWTH': MTI CHIEF ECONOMIST

During a media briefing on the numbers, officials from MTI and MAS pointed out the factors that might exacerbate global inflationary pressures, such as the disruption of energy, food and commodity supplies due to the Russian-Ukraine conflict.

Nonetheless, MTI’s chief economist Yong Yik Wei said that she expects an “above-trend wage growth this year” that will outstrip inflation.

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

Ms Selena Ling, head of treasury research and strategy at OCBC, said that while real wage inflation is possible this year, it is more likely to happen next year, as nominal wage would need to catch up after two years of stagnation during the pandemic.

Certain growth industries, such as infocomm technology and financial services, can be expected to lead the growth, she added.

But DBS senior economist Irvin Seah had a different view, saying that wage growth may be led by languishing sectors instead. This is because any wage increase in thriving sectors would be compared to an already higher base previously.

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

All in all, however, both economists agree that whether nominal growth will outpace inflation will vary from sector to sector, accounting for various factors such as whether the sector is facing a manpower crunch and the return of foreign workers.

CHICKEN EXPORT BAN AND IMPACT ON FOOD INFLATION

During the media briefing, MTI and MAS were asked about the impact of protectionism on inflationary pressures, particularly in light of Malaysia’s recent announcement that it was banning exports of chicken from June.

Malaysia is Singapore’s second largest source of chicken meat after Brazil, making up 34 per cent of chicken imports here.

Asked about the extent of the impact on Singapore’s food and overall inflation, MTI permanent secretary Gabriel Lim said that it would depend on various factors, such as how long the ban would last and how fast Singapore is able to switch sources.

He pointed out that as a small and open economy that is reliant on imports, it would be impossible to “completely shield Singaporeans” from the impact of such disruptions.

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

Separately, Ms Ling of OCBC told TODAY that unlike energy, there are a lot of substitution choices for food, hence the Government’s strategy of diversification and stockpiling does help to hedge some risks.

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

Mr Seah expects that food prices, exacerbated by Malaysia’s announcement, would continue to be a “lingering” driver of overall inflation.

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

TIGHTENING MONETARY POLICY

During the briefing, MAS deputy managing director Edward Robinson was asked if Singapore's current monetary policy is still appropriate in view of the rising inflation.

Unlike many central banks, MAS does not set interest rates as a way to implement 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 deal directly with pure supply shocks”, its intent is to "moderate the pace and persistence of overall price increases, which reflect multiple factors at play".

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