Singapore is ready to live with Covid. Inflation? Not really

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Two of Asia’s most important trading nations have stepped up the fight against inflation as the battle against Covid draws to a close. As the virus spreads, officials must reckon with some inevitability: the pace of price increases will only accelerate, in the medium term. Regardless of the answer, there will be economic costs.

The Monetary Authority of Singapore, which uses the exchange rate to steer the economy, tightened its stance on Thursday in two important ways: were rolled out simultaneously. The result is that the local dollar will be encouraged to strengthen, which will help to mitigate the effect of import price increases. (Singapore, a small island nation with a large shipping industry, imports much of the goods sold on its shelves.)

The MAS also raised its forecast for higher prices and suggested that further tightening may be warranted. “Underlying inflationary pressures remain a medium-term risk,” the statement said. The central bank cited pent-up discretionary spending and demand for labor likely to drive up wages. Officials hope that an increase in the number of foreign workers will at least alleviate some of the staffing shortages as Covid-era border restrictions ease. “We should be able to eliminate the shortages in the next few months,” Finance Minister Lawrence Wong told parliament in March.

Less than an hour after the MAS decision, the Bank of Korea announced its fourth quarter-point increase in its benchmark interest rate since August. The decision, which surprised some economists, is the first without a governor at the helm. Rhee Chang-yong – the new chief, who has yet to pass a confirmation hearing – has made it clear that he sees inflation as a pressing concern.

It is tempting to explain these developments as a few more passengers joining a warmongering train that has seen borrowing costs soar across the world. Federal Reserve officials are eyeing a half-point hike, the Bank of Canada raised its key interest rate by 50 basis points on Wednesday, as did the Reserve Bank of New Zealand. Australia is expected to see an increase in the coming months. Even in Japan, the central bank has been forced to fend off market speculation that ultra-low rates will rise.

What Asia saw on Thursday goes beyond that. Singapore and South Korea have vital stakes in the health of global trade; exports and supply chains are their driving force. They seem to have judged high prices to be a bigger threat to prosperity than Covid, in its lingering forms, or the risk of a sharp downturn from rapid monetary tightening.

The new front requires a shift in social psychology as much as a recalibration of politics. Page three of Wednesday’s Straits Times, Britain’s leading newspaper, was devoted entirely to a government advertisement on inflation, listing the steps officials are taking to dampen price rises. This space was formerly devoted to reminders on Covid protocols.

The government insists inflation is a global phenomenon, even as it seems to be hitting home, from more expensive chicken rice at hawker centers to fee hikes at private schools. As with Covid, it could take the better part of two years – and a good deal of trial and error – to see this enemy go.

Singapore has now committed to living with Covid. He would rather not live with high inflation.

More from Bloomberg Opinion:

• In Singapore, travel is on and masks are off: Bloomberg review

• Is New Zealand raising rates towards a recession? : Daniel Moss

• Eleven Themes for the New Global Economy, Part 2: Gary Shilling

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was Bloomberg News’ editor for global economics and led teams in Asia, Europe and North America.

More stories like this are available at bloomberg.com/opinion

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