Whether you heard from the news or paid for the record $4/litre petrol prices for yourself, Singapore's core inflation has officially reached its highest core inflationary levels in over 13 years.
What exactly does this mean?
Inflation refers to an increase in prices of a set consumer basket of goods and services over time. This reflects itself in the high petrol prices, or fluctuating prices of store-bought groceries and other household products. In the presence of inflation, the value of money falls, and so does one’s purchasing power. In essence, a dollar today holds less value than it did yesterday and so on for however long time goes. As inflation arises from different types of pressures, finding the right solution to combat it may require a greater focus on its root causes as opposed to symptoms.
A timeless approach to making inflation work for you would be to adopt cost-reduction strategies in both your personal and work lives. These strategies can be applicable through different types of inflation, whether global, demand-side or supply-side. Here are some tips to respond to them before you miss the chance:
You cannot fix what you do not know. Noticing an increase in costs first begins with acknowledging that it has increased over time. While it may be easy to notice trends in increasing cost price over the years, you will have to set aside calculations accounting for healthy or justified levels of inflation. Similarly, it is vital that you keep up with updates on the supply and demand side of your industry to know if the inflationary pressures can be waited out - by a short pause in production, for example - or if long-term solutions should be in your list of primary considerations. It would not be the most ideal to unnecessarily enter into a bonded commitment that does not pay off when the inflation quickly subsides.
Borrowing when the value of money is falling?! While this may sound counter intuitive, we propose borrowing now before the expected interest rates rise even more. Interest rates often rise in light of a recession as lenders tend to compensate the falling value of money with greater repayment in the future. One way to work around this issue would be to enter into longer-term contracts with fixed interest rates to get you through this though time. In any case, the rising variable costs driven by inflation may force you to take on additional expenses. Better to take up the loan now than when rates are higher in the future.
Additionally, individuals who borrow on fixed interest rates may benefit from inflation as the real value of their repayment actually decreases over time. To put it simple, higher inflation means that while everything else increases in prices, your interest rate do not increase. In fact if your interest rate is lower than inflation, you might actually stand to gain from negative real interest rate. This means that you actually get paid interest instead of paying it yourself.
Another solution to cut costs can be to offshore certain roles overseas. One of the key benefits of contracting work overseas is that you get to avoid hiring from tight labour markets like Singapore. For example, manpower shortages in the tech industry may exist in Singapore but not so in countries like India, Sri Lanka or Vietnam. Therefore, working with an outsourcing company for your manpower needs might help you avoid significant labour cost increases.
Apart from labour market considerations, businesses can also leverage on the different tax systems of other nations. For example, freelancers working from Bali can now work tax-free as recently announced. This means that carrying out work there is generally lower and allows them to charge lower to their clients.
Just as brain drain explains how local talents migrate elsewhere for better opportunities, so may many internationals find potential in our local hubs. Tapping on a wider, global pool of workers is likely to help benefit your company with connections to talents worldwide in skilled fields like marketing or technology.
If you do intend on working with companies overseas, it is important to keep an eye out for the best currency exchanges rates and leverage on new FX service providers in the market. Foreign exchange costs refer to surcharges added unto your bills when paying in a foreign currency. A typical charge runs around 3% for credit card payments, but non-bank platforms like Aspire and Instarem can go for around 0.5% which is about an 85% reduction in cost.
If this raises any suspicion, let’s see how they do it. Aspire which leverages on TransferWise as their infrastructure partner, has bank accounts around the world. When a customer requests an exchange, 2 inbound transfers are made - one from your Singapore account to theirs, and the second, from their overseas account to that of yours. Their transfers take away additional mark-ups that banks have and leaves both companies and consumers with large savings from otherwise high foreign exchange costs.
Riding out the wave of inflation can start early with long-term planning of contracts. Entering a long-term supply contract can take the form of advance purchase orders for fixed monthly quantities, at fixed prices. Ensuring a steady supply of increasingly priced raw materials is likely to be a saver in the overall cost of your product. Your quick-thinking might just position you as the last one standing in the market if competitors are not able to attain similar supplies at an equally competitive price.
Through this same lens of long-term planning, growing with technology would be a worthwhile investment for your company’s future. With technology, you might actually face lower cost even in an inflationary environment.
With income levels likely matching inflation, it is unlikely for your employee to get more efficient simply with a higher pay. Instead, investing in fixed assets, or technologies, tend to deliver a more certain production efficiency outcome as you automate certain processes within the workflow. Since some services may require a human element in its operations, mundane or repetitive tasks should be reviewed first as it ensures a low and steady cost its process.
The last tip comes as a result of many having grown familiar with the work-from-home arrangements. Though first introduced in a blur, remote working styles have proven to be more productive for bigger teams with busy schedules. Its by-product of cutting petrol costs, saving on office rental and electricity also pose an opportunity for off-site work to be the new normal. It is also worth noting that employees and employers also save time travelling. which also allows room for more work to be completed.
While some corporations may be interested in riding inflation through till it steadies, it may also be good to leverage on some strengths of inflation while it is still possible. Though these propositions are limited, a timeless way to adapt could require a long-term adaptation of these practices or a mix of both - such as redirecting the savings from offshoring practices to technological investments elsewhere. While inflationary pressures are best confronted with fact action, it is important to take your time to think through the most viable option for you.
Tarsilla has been an avid writer since 2019 and covers topics from event exclusives, photography, to finance. With a creative and explorative mind, she actively seeks opportunities to learn new things and takes challenges head-on.
