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Inflation and Incomes in Singapore

Preliminary estimations reveal a 4.5% decline in real median income in Singapore during the first half of 2023 compared to the corresponding period in 2022, as communicated by Senior Minister of State for Manpower, Zaqy Mohamad, during his parliamentary address on Tuesday. This decline is attributed to heightened inflation and a less optimistic economic outlook, resulting in a reduction in real incomes for workers across diverse sectors, where inflation has outpaced wage increases.

While nominal median income, not adjusted for inflation, exhibited an estimated 0.9% year-on-year growth in the first half of 2023, Mr. Zaqy underscored the disparity, emphasising the impact of escalating prices on the purchasing power of the workforce. Responding to inquiries from Members of Parliament Edward Chia and Saktiandi Supaat regarding the effects of price increases, Zaqy Mohamad acknowledged the challenges faced by Singaporeans and permanent residents engaged in full-time employment.

Over the past five years leading up to 2022, these workers witnessed a commendable growth of approximately 9.4% in real median income, averaging an annual increase of 1.8%. Workers at the 20th income percentile experienced an even more accelerated growth, with an annual increase of 2.9% from 2017 to 2022. Concurrently, productivity exhibited a positive trend, growing at a rate of 2% per year over the same period.

However, in the first half of 2023, Singapore's gross domestic product growth decelerated to 0.5%, down from 2.1% in the fourth quarter of 2022. This economic deceleration could lead to reduced demand for goods and services, potentially affecting companies' profitability and prompting cost-cutting measures that may impact pay increments and bonuses.

While comparable half-year figures are unavailable, the last annual decline in median income occurred in 2020 due to the Covid-19 pandemic. Looking ahead, Mr. Zaqy expressed optimism that inflation would moderate in the remainder of 2023, potentially easing the decline in real incomes. However, he cautioned that nominal wage growth for resident workers in 2024 is expected to slow overall as labour demand cools, though certain sectors may continue to experience elevated wage growth.

Despite concerns about a cooling labour market in 2024, human resource consultancy ECA International anticipates a rebound in real wage growth during that year, forecasting a 0.5% growth in real terms and a 4% growth in nominal terms without accounting for inflation. However, uncertainties persist, with potential impacts from geopolitical conflicts and a high-for-longer interest rate environment.

To address the rising cost of living, the National Wages Council has urged employers to consider providing a one-off special lump sum payment to workers. Additionally, the government has introduced measures, such as the Cost-of-Living Support Package and cash payouts for eligible Singaporeans, to alleviate financial pressures.

Mr. Zaqy emphasised the importance of supporting workers through upskilling and reskilling initiatives, particularly for the middle and lower-middle-income group. Various government schemes, including industry transformation maps, career conversion programs, and the Progressive Wage Credit Scheme, aim to facilitate this transition and ensure that wage increases align with productivity growth. Upcoming changes include enhancements to job matching and career planning assistance for Singaporeans and improvements to the Workfare Income Supplement Scheme to boost the income of lower-wage workers.

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