Inflation partially erodes Singaporeans' wage gains, but recovery still ongoing

Singapore

THE median household income from work is now higher than pre-pandemic levels, as wages bounced back in 2021 from the previous year's decline, according to the latest figures from the Department of Statistics (SingStat).

Wages are also expected to continue growing in 2022, observers have told The Business Times - although the bulk of the gains could still be eroded by rising consumer prices.

Households' median monthly income stood at S$9,520 in 2021 - up by 3.6 per cent in nominal terms on S$9,189 in the year prior, and also higher than the S$9,425 recorded in 2019, SingStat said in the Key Household Income Trends 2021 report released on Tuesday (Feb 15).

But, with inflation taken into account, household income grew 1.5 per cent in real terms year on year. That's as full-year inflation spiked to 2.3 per cent in 2021, reversing the negative print the year prior.

The elevated inflation climate means nominal wages will have to post bigger increases "to ensure real wage growth is positive", OCBC chief economist Selena Ling said.

High inflation and the end of pandemic-related wage subsidies "may erode the gains from rising wages, especially for the lower-income groups", added Chua Hak Bin, Maybank's regional co-head of macro research, who expects more muted improvement in 2022.

He projected nominal growth of about 4 per cent in household incomes, supported by policy measures set to raise wages in lower-paying jobs. But the increase could be less than 1 per cent in real terms, factoring in inflation, he said.

That's in line with the estimate from consultancy Mercer for an average salary increase of 3.5 per cent in Singapore this year.

Mercer Singapore reward products leader Mansi Sabharwal noted that "inflation is traditionally not accounted for in pay increments as it is relatively low compared to other parts of the world", as a recent survey found that only 18 per cent of companies polled are raising pay to match inflation, and 70 per cent said no off-cycle salary adjustments are planned.

Still, Euben Paracuelles, chief Asean economist at Nomura, noted that, "while there will be some dampening effect, higher inflation is unlikely to derail the recovery".

"Faster household income growth and falling unemployment rates bodes well for the outlook of consumption spending and domestic demand overall," he said.

Households across nearly all income deciles saw increases in real average household income from work per household member in 2021, although SingStat noted that not all households are consistently in the same decile each year.

The average household income from work for each household member increased by 1.7 to 7.3 per cent in nominal terms for resident employed households in all income groups.

In real terms, households in the first 9 deciles saw growth of 0.6 to 5.5 per cent, while those in the top decile saw a real income decline of 1.1 per cent.

The report highlighted that household income inequality fell in 2021, even before accounting for government transfers and taxes. Household income from work per household member had a Gini coefficient of 0.444 in 2021, lower than 0.452 in 2019 and 2020. The Gini coefficient is a summary measure of income inequality, where 0 denotes complete equality and 1, complete inequality.

After accounting for transfers and taxes, the Gini coefficient fell to 0.386 - compared with 0.375 in 2020, when households benefited from one-off government schemes to cushion the impact of Covid-19.

With Friday's Budget likely to hold more details of a goods and services tax (GST) hike, Ling said: "Since the Gini coefficient is moving in the right direction over time, there is probably greater impetus to ensure that, even with the GST hike, lower- and middle-income households are not going to be worse off. So, the permanent GST voucher scheme and other enhancements will be key in Budget 2022."

Sabharwal, from Mercer, added: "Instead of increasing salary to match growing inflation, employers can consider offering cost of living adjustments and other incentives such as grocery vouchers and fuel vouchers to mitigate inflation."

Household income from work includes Central Provident Fund contributions from employers, while resident employed households are those where the reference person is a Singapore resident and at least 1 household member is employed.