1 UK, Japan and 1% inflation (Linda Yueh on BBC) The Bank of England forecasts that price rises may fall below 1% temporarily over the next six months and won’t hit the 2% target for perhaps 3 years. So, the BoE now expects that the first interest rate rise could be delayed to next autumn. It means that inflation could be more than one percentage point below target and it would be the first time that the BoE governor has had to write a letter to the chancellor due to inflation being too low.
Inflation slowing to 1% in Japan was followed by the Bank of Japan unleashing a massive amount of cash injection that surprised even markets that had gotten used to the BOJ’s propensity to print. Prices were moving further away from their target of 2% and the BOJ feared that the country would not see the end to 15 years of deflation after some promising signs.
So, the Japanese central bank is now injecting 80 trillion yen, which is a staggering $720bn per year. That’s equivalent to a new Switzerland each year (Swiss annual output is about $650bn). There is no magic number for how quickly (or slowly) prices should rise. But, around 2% is what developed economies have largely settled on, which is just enough to get their economies going as price rises spur firms to produce but not so high that consumers see their incomes squeezed. It’s essentially the target for the major central banks of the Federal Reserve, BOE, BOJ, and European Central Bank, among others.
Each country is different and the UK doesn’t have the same deflation concerns as Japan, nor does the euro area yet. But, one common trait is that weak wage growth is a contributor to lower prices. Of course, it’s a welcome change from the years where inflation was growing faster than wages and squeezing incomes. All countries will eye the Japanese experience closely should inflation linger below 1%.
2 War on education (Dawn) The ferocity with which Islamist militants have been attacking educational institutions in Nigeria makes the efforts of their ideological comrades in Pakistan, Afghanistan and Syria pale by comparison. A suicide bomber in the northern Nigerian town of Potiskum attacked a school assembly on Monday killing almost 50 students. Though Boko Haram — Nigeria’s most lethal extremist group — had not publicly claimed the attack at the time of writing, the outfit has carried out similar attacks in the past.
The Boko Haram leadership has openly instructed followers to destroy schools. Pakistan is familiar with such patterns of violence, as local militant groups, most prominently the banned TTP, have bombed or attacked hundreds of schools in Khyber Pakhtunkhwa and Fata, while extremists have also threatened and attacked schools in Balochistan.
In Afghanistan, though things have improved since the Taliban’s fall in 2001, the harsh restrictions the militant group placed on girls’ education while it ruled Kabul are still fresh in the mind. Media reports indicate that the self-styled Islamic State has closed down schools in parts of Syria it controls in order to ‘Islamise’ the curriculum.
The unfortunate truth is that these extremists are jeopardising the future of countless children in the areas they control. If left to their devices the militants will create an entire generation of children with little knowledge or skills other than rote learning of scripture and a very narrow interpretation of Islam. Or the youngsters will be left illiterate. Apart from the other effects of militancy, we may lose an entire generation to the obscurantists.
3 The next 50 years of Singapore’s economy (Ho Kwon Ping in Straits Times) The first L is Location. How do we maintain our competitiveness as Singapore’s strategic location may decline? I believe that the answer is in creating several critical ecosystems of business activity, as we are now doing. To create critical ecosystems which are so elaborately interrelated that they cannot be reconstructed by competitors. Even if Singapore’s geographic location becomes less strategic in a global context, the eventual creation of a genuine Asean Economic Community will finally create opportunities for our SMEs.
The second L: Land. I had identified two challenges: viability of manufacturing in the face of land shortages, and housing affordability. On the first challenge, there is no evidence that manufacturing of high value, sophisticated products requires more space or labour than services. The second challenge of housing affordability is more intractable and perhaps requires a more radical approach. First, property prices should perhaps be more actively managed. Second, in terms of pricing, the tail should not wag the dog – public housing prices should perhaps determine private housing prices, not the other way round.
Finally, the third L: Labour. One reason for Singapore’s high income inequality is the high wage differential between different job vocations. There are two reasons for this. First, a large workforce of low-cost, low-skill foreign workers depresses the wages of everyone in that wage band, regardless of nationality. Second, our education system creates a large differential in starting salaries between the technical versus university graduates.
There are two possible ways to address these causes of our problems. First, we can perhaps devise a more innovative immigration programme where foreign workers are seen less as a necessary evil but more as one element in an overall population strategy which does not distinguish so much between foreigner and Singaporean, but recognises their mutual dependency.
Second, perhaps education pathways can be re-designed to help reduce income inequality. We can amend the technical school – meaning polytechnic – educational pathway so that their students graduate at the same age as university graduates, and have starting salaries closer to graduates. This can be done with a longer industry attachment and genuine apprenticeship programmes which provide much deeper (and equitably paid) work experience and job knowledge.
And two “soft” suggestions:d” economics. My first suggestion is that Singapore can take the lead, again over the next 50 years, in defining new and more holistic indices for economic progress, which take into account factors such as human well-being, environmental sustainability, and socio-cultural development. My final suggestion is that inclusion, diversity and freedom of expression need to be proactively cultivated if we want to attract the best global talent.