News reports about the “inflation rate” may prompt us to compare our personal experiences of recent price changes with those reported in the news. Some of us might feel like prices have increased by more than the official figure, while others don’t seem to notice prices being any different.

This is because the impact felt by individual consumers depends on the items that they buy. Take someone who loves durians. When its price rises, he will feel the pinch on his wallet more than his friend who does not eat the fruit!

While observing changes in the cost of the items you consume frequently might seem like an easy way to gauge inflation, a central bank needs a broader measure of how prices are changing across the entire country. This ensures that policies are responding to economy-wide issues, rather than price changes of specific items.

The Consumer Price Index (CPI) is widely used to measure inflation. The CPI tracks changes in the price of a fixed basket of goods and services commonly purchased by households. The CPI is intended to reflect the inflation experience of a representative, or average, household in Singapore.


How is the CPI compiled?

Every month, the Department of Statistics Singapore (DOS) compiles the CPI by collating the prices of about 6,800 brands or varieties of goods and services from 4,200 outlets.

This is no easy feat. In addition to scraping data from websites, DOS obtains prices from a range of sources including postal or email queries, electronic returns and administrative data.

Interviewers also fan out across the island every single week to collect prices of perishable food items like seafood, meat and vegetables, which tend to be more volatile and thus have to be surveyed more often.

Prices of some goods and services which tend to fluctuate These include service and conservancy charges for HDB flats, utility tariffs, bus or MRT fares, school fees, medical services and household durables. They might be sampled less frequently—say, every month, quarter, or year, or only when the prices change.

 

What is the inflation rate that MAS monitors to adjust monetary policy settings?

MAS is responsible for maintaining price stability conducive to sustained economic growth in Singapore. As such, MAS pays close attention to a broad range of price and cost indicators in the economy. Two key measures of consumer price inflation that MAS watches closely are ‘MAS Core Inflation’ and ‘CPI-All Items inflation’.

CPI-All Items inflation, also known as headline inflation, refers to changes in the price level of the entire CPI basket. Meanwhile, MAS Core Inflation measures price changes of a subset of goods and service in the CPI basket, excluding accommodation and private road transport. MAS Core Inflation is seen as a better gauge of the day-to-day price changes impacting households, and is therefore the most important metric for MAS in formulating monetary policy.

MAS also monitors movements in other cost and price factors, such as wages and rentals, import prices, output prices, as well as labour market tightness and inflation expectations. These can shed light on how prices will evolve into the future.


Your personal experience of price changes may differ from that of the CPI

While the CPI basket is intended to reflect the inflation experienced by the average household in Singapore, it may be quite different from the actual consumption basket of an individual. This is because every person’s spending pattern is unique—from the brands they prefer, to how much of their budget they devote to different types of goods and services. Households that spend more on the items within the CPI basket that have seen a faster pace of price increases will feel like inflation is rising more quickly for them, and vice versa.

Interested to find out how the price of your personal consumption basket has changed over time? Visit the MAS Gallery located at MAS Building on Shenton Way to find out through a fun and interactive game!

In the next article, we will find out how MAS manages inflation in Singapore.