How Does The Exchange Rate Affect Inflation
Infographics Credits: MAS Gallery Zone B "How Does The Exchange Rate Affect Inflation"
Singapore's exchange rate policy affects inflation through two main channels: a direct channel via import prices and an indirect channel via the demand for goods and services made in Singapore. As the Singapore dollar (S$) strengthens, the prices of imported good and services will be lower in S$ terms. In addition, both external and domestic demand for goods and services made in Singapore would drop, leading to weaker demand for labour and land. As a result, wages and rents tend to moderate.
Find out how the exchange rate influences inflation through these two channels and why they are particularly effect in the Singapore economy.