Today just read that a minister reflecting that lower US dollars (USD) equate to lower inflation. I disagree with that statement. I'm also unsure why I heard more than 1 view that lower USD equals to lower inflation.
First of all, international prices for most commodities, like wheat, corn, sugar, natural gas, and of course oil, is all priced in USD. All things constant, if the demand and supply remains the same, and the currency went down, the price will go up. Therefore, all these essential goods will rise in price. Therefore, how does a lower USD lead to lower inflation?
Furthermore, since they are all essential goods, there's no running away from it. Can you cook without cooking oil? Can you have rice without wheat? Can you run our power plants without natural gas? Price of flour went up by 20%. Price of chicken went up by 20% because of the higher price of corn feed. Soon, petrol will also rise because of sky high oil prices. Cooking oil? Sugar? Most hawker centres have also up their price mostly by 50 cents. Some people say GST, but I think it's also because the price of food has gone up by a quite a bit. This, coupled with the unpopular GST raise, is causing most hawkers to hike their prices.
Singapore controls the inflation by currency strength. However, can Singapore afford to keep strengthening the currency? The manufacturing sector has been declining due to the strong Singapore dollar. Those companies who pay their staff in Singapore, but sell their goods overseas will be affected badly if the currency strengthens further. Therefore, I don't see how MAS can keep strengthening the currency without affecting the competitiveness. In fact, a lower USD can be detrimental to companies in Singapore, but that's another story.
Don't forget the major supermarkets are currently absorbing the 2% increase in GST. What will happen to the inflation next year?
If the CPI still shows a low reading for October, something is very wrong with the CPI. I see price hikes across the board the most this year, and I don't see the price hikes stopping until at least 2010.
You mean no one knows the price of commodities are priced in USD??
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