Productivity is not enough – to tackle costs, Budget 2023 can offer help with sustainability

BUSINESSES are looking to Budget 2023 for some relief from rising costs. But the standard solution of transformation may be of limited help this time, as many businesses that have dutifully transformed are still adversely affected by inflation and rising interest rates.

Efforts to control inflation can only go so far. Other central banks may crank up interest rates to cool the economy, in the hope that this helps to ease inflation. But this isn’t a fix available to Singapore, where monetary policy is exchange rate-based.

For the most part, exchange rate policy has been an effective means of keeping a lid on imported inflation. As early as the middle of last year, however, economists started to warn of domestic price pressures instead, arising from Singapore’s post-pandemic recovery.