Increase doesn't fully reflect total inflation
- The Straits Times, 15 June 2012
1. Mr Young Pak Nang enquired about the use of the headline Consumer Price Index (CPI) inflation rate to adjust the CPF Minimum Sum (ST, 8 Jun 2012). As he noted, increases in imputed housing rentals on owner-occupied homes and in prices of COEs for private cars contributed to higher than normal headline CPI inflation last year. For the majority of retirees, these are not items that would lead to increased cash expenditures.
2. The Minimum Sum (MS) is aimed at providing for CPF members' basic retirement needs. The original target, adopted in 2003, was for the MS to increase in real terms to $120,000 (in 2003 dollars) by 2013. Further, besides this real increase, the MS has to keep pace with long term inflation trends. The MS has therefore been increased each year to meet the required real increase and to take into account inflation.
3. However, this year's MS increase was moderated, and hence did not fully reflect the CPI inflation that occurred over the last year. The 2012 increase in MS, by $8000, was one third less than it would have been if we had followed the usual formula for MS adjustments. With the moderated increase, we have stretched out the 2013 target to 2015.
4. Some of the factors that have led to higher CPI inflation in the last year are cyclical, and likely to even out over the long term. For example, imputed housing rentals on owner-occupied homes have significant short-term impact on CPI, but tend to even out over time. Over the 15 year period from 1996 to 2011, which like most such periods saw the property market fluctuating in both directions, headline CPI inflation averaged 1.6%. This is comparable to the average inflation of 1.5% over the same period if imputed rentals on owner-occupied homes were excluded.
5. We thank Mr Young for his useful query.
CPF Minimum Sum should reflect 'true' inflation
- The Straits Times, 08 June 2012
The report ('CPF Minimum Sum to be raised'; May 31) stated that the Government has decided to raise the Central Provident Fund (CPF) Minimum Sum from $131,000 to $139,000 from July, instead of $143,000.
The reduction is aimed at cushioning CPF members from the impact of the acute, inflation-driven spike, spreading the balance of $4,000 until the new target date of 2015.
When Trade and Industry Minister Lim Hng Kiang addressed the concerns over rising inflation in Parliament ('When big policies impact the little man in the street'; May 15), he cited big-ticket items like housing rentals and car prices as being responsible for the bulk of inflation. As most Singaporeans own their homes, the issue of rents is irrelevant to citizens, he explained. As for private cars, only a small part of the population buy cars, so the majority of people are also not affected by the high inflation.
If these are the reasons for rising inflation, why is the Government applying the full annual inflation rate when adjusting for the increase in the Minimum Sum?
Shouldn't the Government moderate the figure downwards - say, to two-thirds the actual inflation rate - to recognise that some major contributors to inflation do not affect most CPF members?