It is important to recognise the global nature of the price pressures we are facing. When there is a pick-up in global food and energy prices of the magnitude we are seeing today, it is not possible to completely insulate the domestic economy from these increases. This brings us to the second component of Singapore’s approach to inflation: fiscal support to help vulnerable groups cope with price increases. The government has stepped in forcefully to support vulnerable groups who are less able to bear the sharp price increases. Fiscal support has been proactive, beginning with the Budget Statement in February 2022 to the $ billion support package announced last month. Measures include cash grants and rebates on utility bills for lower-income households who have been disproportionately affected by higher prices. The government has been careful that fiscal support does not add stimulus to the economy that could exacerbate inflationary pressures. A period of inflation is not the time for expansionary fiscal injections that could add to tightness in labour, land, and product markets. Fiscal support has therefore been targeted at the more vulnerable groups and designed to avoid stoking inflation or distorting price signals. The government has given the assurance that if the inflation situation worsens significantly, it will be prepared to do more. The third component of an integrated approach to inflation control entails sound labour market adjustments to prevent inflation becoming entrenched. These include: relieving labour market tightness through a resumption of inflows of non-resident workers.

We have had an impressive annual increase in factor productivity of per cent , while capital intensity has increased by a modest 0.1%. The fact that this change began in the same year that the Economics Commission presented its proposals is probably mainly coincidence, but the fact that a macroeconomic stabilisation has a rapid and enduring effect on the development of productivity has been proved by the economist Easterly, amongst others. That is to say, the combination of price and budget stability is an important explanation of developments in total factor productivity. It is probably due to stable prices providing a better information value in relative prices, which improves the allocation of resources. The combination of price stability and budget stability also increases willingness in the household sector and corporate sector to make long-term decisions. If we consider other factors that stimulate the rise in total factor productivity, there are a number of changes that play a central role. In general, one tends to seek explanations for increasing factor productivity among factors such as technological developments, education, competence and incentives among the labour force, allocation of resources in society, as well as between and within branches and companies. There is therefore a large group of possible factors, but many of these are connected to general incentives behind the transformation and to the capacity to utilise technological progress in the world around us. The allocation of resources in society includes an area where important changes were implemented mainly before the days of the Lindbeck Commission.