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September 2022
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Singapore central bank chief says global inflation likely to stay higher for longer

There are four structural factors underpinning the prognosis: supply chain developments; labour market dynamics; energy transition; climate change impacts
By Goh Thean Eu   
September 22, 2022

Singapore’s central bank chief warned that global inflation is likely to stay higher for longer as the era of cheap money has “most likely” ended.

Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), identified four structural factors underpinning the prognosis: supply chain developments, labour market dynamics, transition to clean energy, and climate change.

“The era of cheap money, cheap labour, and cheap energy is most likely over,” he said in his keynote speech at an investment conference in Singapore on September 20, adding that investors are likely to see more recurrent bouts of higher price increases compared to the last 20 years when global inflation averaged 3.8%.

He pointed to the war in Ukraine as one of the reasons for global supply disruptions which are among the factors driving prices higher.

“This will increase prices in the short term and may have an inflationary impact over the medium term as supply chain reconfigurations are complex and take time [to reset],” he said.

Meanwhile, he noted that labour force participation rates have dropped as Covid-19 seems to have prompted a change in employee preferences about working conditions and job satisfaction, with some opting to move into the gig economy or staying home.

“There is also a widening skills gap across many sectors of the global economy that could result in persistently high vacancy rates,” he said.

Also inflationary are the impact of climate change, and surging demand for minerals such as copper, aluminium, cobalt, lithium, nickel and rare earths that are critical for various clean energy technologies in the transition to green energy to curb carbon emissions.

“Floods and droughts of increasing frequency and intensity could cause not just disruptions in food supply but potentially also a permanent reduction in agricultural yields, with worrying implications for food price inflation,” he said.