[CPF] Increase doesn't fully reflect total inflation

The Straits Times, Published on Jun 15, 2012
CPF MINIMUM SUM
Increase doesn't fully reflect total inflation
MR YOUNG Pak Nang inquired about the use of the headline consumer price index inflation rate to adjust the Central Provident Fund Minimum Sum ('CPF Minimum Sum should reflect 'true' inflation'; last Friday).
As he noted, increases in imputed housing rentals on owner-occupied homes and certificate of entitlement prices for private cars contributed to higher-than-normal headline consumer price index inflation last year.
For the majority of retirees, these are not items that would lead to increased cash expenditures.

The Minimum Sum is aimed at providing for CPF members' basic retirement needs.
The original target, adopted in 2003, was for the Minimum Sum to increase in real terms to $120,000 (in 2003 dollars) by 2013.
Further, besides this real increase, the Minimum Sum has to keep pace with long-term inflation trends.
The Minimum Sum has therefore been increased each year to meet the required real increase and to take into account inflation.
However, this year's Minimum Sum increase was moderated, and hence did not fully reflect the consumer price index inflation that occurred over the last year.
This year's increase in Minimum Sum, by $8,000, was one-third less than it would have been if we had followed the usual formula for Minimum Sum adjustments. With the moderated increase, we have stretched out the 2013 target to 2015.
Some of the factors that have led to higher consumer price index inflation in the last year are cyclical, and likely to even out over the long term.
For example, imputed housing rentals on owner-occupied homes have significant short-term impact on the consumer price index, but tend to even out over time.
Over the 15-year period from 1996 to last year, which like most such periods saw the property market fluctuating in both directions, headline consumer price index inflation averaged 1.6 per cent.
This is comparable to the average inflation of 1.5 per cent over the same period if imputed rentals on owner-occupied homes were excluded.
We thank Mr Young for his useful query.
Farah Abdul Rahim (Ms)
Director, Corporate Communications
Ministry of Manpower
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