reached almost 5 % in q1 this year and households may face higher price increases for specific expenditure items. mas is monitoring these and other cost indicators closely. allow me to take this opportunity to highlight some conceptual issues concerning price adjustments in the phillips, p, shi, s and jun, y ( 2011 ), “ testing for multiple bubbles ”, working paper no. 03 – 2011, singapore management university. bis central bankers ’ speeches economy and their implications for monetary policy. in other words, why is inflation higher than what we have experienced historically, and is monetary policy responding in an optimal way? implications for inflation first, it is important to recognise the complex interplay of demand and supply factors underpinning the recent price developments in singapore. demand - side pressures on prices have built up as domestic economic activity rebounded strongly from the great recession of 2008 / 09. regional demand has been firm, supporting the continued expansion of many of our services industries, while strong employment conditions in singapore have underpinned robust consumption growth for a range of goods and services. sustained low global interest rates and capital inflows have supported the demand for housing – a point i will return to later. at the same time, supply - side factors have become more significant, with the immediate constraints in labour and housing markets pushing up domestic costs. these reflect structural capacity constraints in the economy. policy measures are being put in place to help the economy transit to a more sustainable model of productivity - led growth, as singapore ’ s reliance on foreign workers is reduced. as the economy adapts and productivity growth rises, price pressures are likely to subside and provide a lift to real wages, making singaporean workers better off. implications for monetary policy my second observation is that the monetary policy stance has to be carefully calibrated to take into account the multiple influences on consumer prices. monetary policy should act decisively to ease short - term inflationary pressures driven by strong demand, through applying an appropriate constraint on overall economic activity. our studies continue to show that in our small, open economy, the exchange rate has a significantly greater impact on growth and inflation compared to domestic interest rates. hence, mas has been tightening monetary policy by allowing a stronger rate of appreciation of the s $ nominal effective exchange rate since april 2010. however, with respect to cost pressures arising from the supply - side, monetary policy should aim to temper, but not fully offset. higher labour costs in the short term due to permanent supply - side shifts are part and

this is no mean task – it implies by 2030 installing every day the generation capacity of what is currently the world ’ s biggest solar farm. third, hydrogen will be an important new hope for decarbonisation. this involves using renewable energy to split water molecules to produce both hydrogen and oxygen. the hydrogen can be burnt as a fuel emitting only water vapour or be put into a fuel cell to make electricity on demand. it can also be used as a feedstock to make more energy - dense compounds such as ammonia, which can serve as a fuel itself. hydrogen and ammonia can be critical to the transition to a net - zero world given their potential role in decarbonising hard - to - electrify sectors, such as steel production ; fuelling trucks, ships, and other heavy vehicles. all of this is technologically possible but making it economically efficient will require further innovation. in singapore, our aim is to progressively decarbonise the power sector. we do not have the land for large solar or wind farms or fast flowing rivers for hydro - electric power. but it helps that singapore is already less carbon - intensive in power generation than many other countries that still use coal. we are working to increase the carbon efficiency of natural gas which today accounts for 95 % of electricity generation and is likely to remain the dominant energy source for some time. we are accelerating solar deployment across the island and building viable energy storage systems. using our reservoirs, we are opening one of the world ’ s largest floating solar energy systems. we are using transmission lines linked to neighbouring countries to import the renewable energy they produce. singapore has already started importing from laos energy from hydroelectric power. we are exploring geothermal and biomethane technologies as well as small modular reactors using nuclear fission. green economy the third imperative for the net zero transition is to green the economy. greening the existing economy is more important than growing new green sectors. investing in green technologies and renewable energy is important. but such pure green activities are estimated to make up less than 8 % of the global economy. non - green activities – in manufacturing, building and construction, aviation, maritime, agriculture and fisheries - make up the bulk of any economy. to move the needle on emissions reduction, we need transition strategies that progressively reduce the carbon footprint across all sectors. let me highlight six challenges associated with greening the global economy. first, a green economy will rely much more on electricity. the cheapest and easiest way to