Singapore Finance Minister Tharman Shanmugaratnam has been flogged on the Internet because he warned that Singapore could face inflation if companies increase wages to help workers cope with the higher cost of living today.
Now on some degree I agree with him, after all Singapore's economy suffered a 6.6% decline in the second quarter. What I disagree with him is what's being done to help Singaporeans cope with growing inflation. If increasing wages is not the answer the Singapore government want, what is?
Singapore's competitiveness and the ability to create jobs has not been affected by the global slowdown thus far, as proven by record profits in a booming economy in 2007. However, our competitiveness will be affected if Singaporeans workers are unhappy with their paychecks. Wage stagnation in line with inflation is a problem that GST credits and Workfare Income Scheme will not solve, especially when inflation will be between 5-6 per cent on average this year.
What's more there's no reason to believe inflation will be lower towards the end of the year. Global oil prices are almost at US$150 and most expect that it will cross that mark before the end of the year. Inflation pressure will increase when that happen.
Mr Tharman said that raising wages is not the answer, so what is the answer? Mr Tharman believed that the lasting solution to inflation is to continue with efforts to help workers upgrade their skills and earn better wages. However, that only works if there are jobs you can upgrade to. Which will be hard to find when your economy just slumped 6.6% for the quarter. Also the credit crunch crisis in the United States and Europe has not yet been solved. Singapore is heavily dependent on world trade, and the slowdown in the U.S. and Europe will continue to be a drag on Singapore's growth. Mr Tharman himself had said that the weakness in the US economy could extend into next year.
So upgrading skills as the way to fight inflation? Sorry, I don't think so.