Inflation

Are Our Salary Increments Keeping Up With The Inflation Rate?

By The Boy Who Procrastinates - August 24, 2019


When the topic regarding the cost of living was brought up with my friends, some of them lamented about how the price of everything has increased except for their salaries. 

Admittedly, I am able to relate to their frustrations, especially when the labour market has been mired in the doldrums during recent times of economic downturn. 

 Furthermore, as one would expect, such monthly active income provides a pivotal avenue of wealth accumulation and is instrumental in the early stage of journeying towards financial independence. 

 To enjoy a rising standard of living, the wage hike should ideally commensurate with the increase in price of goods and services at a minimum. This would ensure that the purchasing power of income is not significantly eroded by inflation. 

 Building on from the previous post on inflation, this article aims to shed light on the sustainability of income growth in Singapore and how it fares against the ravages of inflation. 

Median Gross Monthly Income Vs Inflation 

For a holistic comparison, we will examine the median income data presented on the MOM website. In 2018, the median gross monthly income among Singaporeans and permanent residents who were employed full-time was reported to be $4,437, including employer's CPF contributions.

 In simpler term, this is the middle amount that divides the income distribution into two equal groups, with 50% of them earning above $4,437 and the other 50% earning below that amount. 

 The data for the adversary has been extracted from Singstat and we will be measuring against the overall Headline Inflation (also known as CPI All-Items Inflation), as well as the MAS Core Inflation, which was derived from the headline Inflation by excluding the costs of accommodation and private road transport. 
Data for 2005 is not available and imputation with the previous value was employed. 
(Click to enlarge)

 The above chart illustrates the annual trends for wage growth rate (including employer's CPF) and inflation rate over the years.

 Due to the strong correlation between wage growth and inflation, it should come as no surprise that the line plots tend to move in tandem.  

 With the exception of decline in 2004, it appears that the percentage change of gross monthly income for Singaporeans has been positive. On top of that, the nominal rise in earnings has generally outpaced the inflation rate by a fairly significant margin. 

The average growth in median gross income is calculated to be 3.78%. On the other hand, the average Headline Inflation and MAS Core Inflation are 1.68% and 1.65% respectively. 


Data for 2005 is not available and imputation with the previous value was employed. 
(Click to enlarge)

Taking an alternate perspective to the wage and inflation movement, the exploration of how income and prices of consumer goods have changed over the last 18 years is probably more intuitive and easier to interpret. 

 Using 2001 as the base year, we can observe that the income growth rate has begun to exceed the inflation rate from 2008 onward, with the disparity widening since. 

 While some may dismiss the trend of rising income due to personal anecdotal experiences like the non-existent pay raise, Singapore, as a whole, has generally progressed with positive wage hike that is sufficient to offset the inflation over the years.  


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Disclaimer: Kindly note that this is not a sponsored post. The author is in no way affiliated with any of the mentioned institutions and does not receive any form of remuneration for this post. The Boy who Procrastinates has compiled the information for his own reference, with the hope that it will benefit others as well.

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3 comments

  1. CreateWealth888824 August 2019 at 13:37

    We need a few promotions with bigger salary adjustment during career life to significantly overcome inflations

    ReplyDelete
    Replies
    1. The Boy Who Procrastinates1 September 2019 at 16:10

      Ah I know right. Still striving for that big promotion and pay increment. Good Luck to the both of us!

      Delete
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