The Real Risk of the “Risk-Free” Rate: A Closer Look at Singapore’s Inflation Numbers
Singapore Government Securities (SGS) bonds are often a go-to investment choice for Singaporeans due to their low-risk nature and the assurance of returns. In 2022, the rates on these bonds ranged from 0.5% to 4.4%, offering a seemingly steady investment. However, even these ‘risk-free’ investments carry hidden risks, the most significant of which is inflation.
Inflation: The Stealthy Erosion of Your Investment
Inflation is the rate at which the average price of goods and services increases over time. When inflation outpaces your bond’s return rate, the real value of your investment diminishes.
In 2022, the Consumer Price Index (CPI) in Singapore rose by 6.1% [1]. The CPI measures the average price changes over time of a fixed basket of consumption goods and services commonly purchased by the resident households and is widely used as a consumer inflation measure.
While this might appear as a mere statistic, its impact on our day-to-day lives is far-reaching. Let’s take a closer look at some categories [2] that saw a significant price increase in 2022, and are of particular concern to Singaporeans:
- Electricity: Utilities, including electricity, saw an inflation rate…
