Tuesday, March 1, 2011

Tackle inflation now

Mar 2, 2011

THE Government has made a strong push in this year's Budget to raise real median incomes over the long term, while Mr Low Thia Khiang of the Workers' Party has called for immediate measures to lower price pressures on consumers by reducing the goods and services tax and reining in the price increases on essential items ('Who will win inflation debate?'; yesterday).
While both measures are at opposite ends of the spectrum of methods to tackle inflation, one via incomes, and the other via prices, the two types of measures are not mutually exclusive. It is possible for a combination of both to be used.
Raising real incomes will take time, and such measures will take effect only in the medium to long term.
However, inflation has been a significant problem in the past two to three years, with headline inflation numbers going past 3 per cent more often than not, in stark contrast to the period of sustained low inflation that our economy enjoyed in the previous five to 10 years.
Even if the difficult task of increasing productivity to raise real incomes is successful, the roaring inflation that we are currently experiencing would have already done very significant damage to lower-income families in the interim period.
There are even calls from other voices in the Government to be wary of the harm that inflation has on the social mobility of lower-income families.
Inflation is a clear and present danger that, if not tackled with immediate measures, will do harm that even medium- to longer-term measures cannot repair.
While the Government's plans to raise real incomes are laudable, now is not the time to stand back and allow inflation to rear its ugly head in the short term.
I urge the Government to consider more broad-based short-term measures to tackle inflation, in addition to its longer-term plans.
Tan Jiaqi

[There are perhaps three causes to inflation. One, increased demand, not enough supply. Two, too little supply. Three, too much money supply, with money losing value.

The first situation is happening. As China gets richer, it wants more cars, it wants more goods, it wants better food. As it ramps up its growth in manufacturing, it wants more raw material and it wants more energy, specifically, oil. World demand is rising. You want to stop inflation? How do you stop China?

The second situation is happening. Floods and cyclones in Australia devastated crops and supplies of raw materials. Unrest in the middle east is disrupting oil supplies. Increase cost of oil is raising the cost of transporting food and goods around the world. Chicken from Brazil will cost more when the cost of transporting them increase. How do you ensure supply of food and goods are not affected by weather events and political events?

Reduce GST? And replace that with what?

Subsidise food? For how long? Isn't it more focused to give cash to low income?]

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