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GIC: Rubbing salt into S’poreans’ CPF woes

In CPF, Economy, GIC on 03/08/2014 at 4:42 am

This is how our constructive, nation-building BT reported how GIC is adding insult to injury:

AMID a gloomier outlook for fund managers globally, GIC has racked up annualised real returns of 4.1 per cent over the past 20 years to end-March this year, up from 4 per cent as at end-March last year. This return – above global inflation – was underpinned by a strong recovery in global financial markets, said the Singapore sovereign wealth fund.

Waz the point of this inflation-beating return when the 2.5% CPF rate is below S’pore’s inflation rate? Remember that until recently, we were told the 2.5% rate was justified given that inflation was oneish?

In late July after the June inflation numbers were released which showed core inflation slowed for a second straight month to 2.1 per cent after May’s 2.2%, but a drop to below 2% will be unlikely this year, OCBC economist Selena Ling told MediaCorp..

CIMB economist Song Seng Wun agreed: “The domestic pressure on core inflation hasn’t disappeared. In fact, the pass-through of wage costs to consumer prices has so far been slower than expected, but may become more visible as the economy further recovers.”Core inflation, which excludes accommodation and private road transport costs, is regardeded as a reflection of the wage cost pressure, and the MAS and the MTI retain their 2 to 3%  forecast given the tight labour market. Govt’s way of saying, “You want less FTs, we give you slower growth of FTs and higher inflation.”?The official forecast for all-items inflation is being kept at 1.5 to 2.5%, as the Government expects overall prices to ease in the second half due to lower imputed rentals and car prices, with Certificate of Entitlement quotas expected to rise more than expected*.

Especially as our CPF monies do find their way into the pool of funds managed by GIC. Not that this s any secret exposed by Roy Ngerng. I blogged about this in 2009. And I think TRE reproduced it then.

And one LKY spoke in 2000 or 20001 at a GIC anniversary do about how the CPF monies were converted into a special govt bond and the proceeds flowed into GIC after being mixed with govt surpluses in the Consolidated Fund.
*Update at 5ooam: Extract from BT of 24 July on inflation
The government has cut its 2014 inflation forecast amid lower car prices and housing costs expected for the second half of the year: it now sees headline inflation coming in at the lower half of its 1.5-2.5 per cent forecast range.

But with domestic cost pressures remaining the primary source of inflation, the government reiterated that core inflation (which strips out accommodation and private road transport costs) will stay elevated at 2-3 per cent in 2014.

The impact of rising consumer prices on households varied across different income groups in the first half of this year. Worst hit were the bottom 20 per cent of households: their larger expenditure shares on food and healthcare costs meant they experienced a higher inflation rate (excluding imputed rentals on owner-occupied accommodation) at 2 per cent, compared to the middle 60 per cent income group and the richest fifth of households (both at 1.7 per cent).

CIMB and DBS economists agreed that much of the increase in food and healthcare costs was the result of ongoing restructuring efforts, where a tight labour market has pushed costs (and therefore prices) up.

Said DBS’s Irvin Seah: “Restructuring is inflationary in nature, and it will affect everything. Even if we are unable to bring healthcare costs lower, we should try to moderate the pace of increase.”

According to a report released by the Department of Statistics (DOS) yesterday, Singapore households experienced a 1.7 per cent inflation rate in the first half of this year compared to the same period in 2013. This was lower than the 1.9 per cent rise seen in the preceding six months.

Excluding imputed rentals on owner-occupied accommodation, the consumer price index (CPI) went up by 1.7 per cent in H1 2014 – slightly higher than the increase of 1.5 per cent in the second half of 2013.

As for the second half of this year, the government expects headline inflation to ease, due to lower car prices and accommodation costs.

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  1. […] Living Investment: How much to live on during retirement? – Thoughts of a Cynical Investor: GIC: Rubbing salt into S’poreans’ CPF woes – Singapore Notes: So Much For […]

  2. Dumb index fund operated by monkeys still beat GIC, before costs. After costs — peanuts & bananas versus $20M salaries — GIC lost bad.

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