| Box
15 |
| DEBUNKING
THE DEFLATION MYTH IN SINGAPORE |
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With inflation
in a number of countries falling into negative territory,
there were concerns that Singapore may also be caught
in a deflationary cycle. Against this backdrop, MAS undertook
a study to examine consumer price movements in Singapore
over the past two decades1.
There were three occasions when consumer prices declined
over a fairly extended period of time, coinciding with
the major recessions in 1986-87, 1998-99, and 2001-02.
The study concluded that the periods of price declines
were largely cyclical in nature and reflected efficient
market adjustments to a fall in aggregate demand, thus
preventing an even more severe adjustment in real economic
activity. These price declines cannot be characterised
as sustained deflation. The most recent episode in 2001-02
also reflected oilrelated supply shocks and policy induced
relief measures, suggesting the role of favourable supply-side
developments.
The study identified ongoing structural changes in the
economy influencing prices as well. These include the
benefits of globalisation, liberalisation and productivity
improvements in the economy that have offered consumers
a greater quality and variety of goods at reduced prices.
As the economy recovers, the cyclical drag on prices will
diminish, even as the ongoing structural developments
continue to play a role in the longer-term evolution of
prices. |
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