How can government, businesses and households solve the economic issues in this article in terms of circular flow model?

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There have been growing concerns about the increase in prices in Singapore. On a year-on-year basis, Singapore's headline inflation increased to 4 per cent in December 2021 a near nine-year high. This has had a huge impact on household budgets. From higher utility bills to higher prices of coffee in the coffeeshops, Singaporeans are now paying more and saving less. In 2021, Singapore's private home prices increased by 10.6 per cent and HDB resale prices increased by 12.7 per cent. The Straits Times Index (STI) enjoyed a total return of 13.6 percent. Sales of shophouses also rose to an all-time high of S$1.9 billion, with freehold shophouses seeing a rise in the average unit price by 19.6 per cent year-on- year. Through their impact on rents, this will have a domino effect on other aspects of the economy. Demand for Singapore's houses will continue to rise if property continues to be seen as a stable, appreciating asset, relative to other countries. Another key difference about the current inflation is how they are also driven by supply bottlenecks due to the unprecedented pandemic curbs as factories were closed and workers were unable to work. These shutdowns led to a shortfall in raw materials, impacting other related industries. For instante, semiconductor shortages have hindered the production of automobiles, driving up prices. Furthermore, freight rates have increased by more than 10 times due to port disruptions and a lack of shipping containers. These have led to an increase in cost of production in Singapore for firms, causing firms to raise their prices to protect their profit margins or go out of business. Singapore has maintained its 2022 GDP growth forecast for this year at 3 to 5 per cent. Moving forward, Ministry of Trade & Industry said the economy will continue to grow, albeit unevenly, in 2022. It noted that the outlook for Singapore's external demand has "deteriorated slightly" since its last report in November, as many economies tightened restrictions to combat the highly transmissible Omicron variant. ICA 1 Guide / BM0008 / Page 3 Global supply bottlenecks remain and are expected to persist throughout the first half of this year. This may constrain industrial production and growth in some external economies in the near term. These persistent supply chain snarls, alongside rising energy prices due to geopolitical tensions, have also exacerbated global inflationary pressures. Source: Adapted from CNA,15 Feb, 17 Feb 2022. There have been growing concerns about the increase in prices in Singapore. On a year-on-year basis, Singapore's headline inflation increased to 4 per cent in December 2021 a near nine-year high. This has had a huge impact on household budgets. From higher utility bills to higher prices of coffee in the coffeeshops, Singaporeans are now paying more and saving less. In 2021, Singapore's private home prices increased by 10.6 per cent and HDB resale prices increased by 12.7 per cent. The Straits Times Index (STI) enjoyed a total return of 13.6 percent. Sales of shophouses also rose to an all-time high of S$1.9 billion, with freehold shophouses seeing a rise in the average unit price by 19.6 per cent year-on- year. Through their impact on rents, this will have a domino effect on other aspects of the economy. Demand for Singapore's houses will continue to rise if property continues to be seen as a stable, appreciating asset, relative to other countries. Another key difference about the current inflation is how they are also driven by supply bottlenecks due to the unprecedented pandemic curbs as factories were closed and workers were unable to work. These shutdowns led to a shortfall in raw materials, impacting other related industries. For instante, semiconductor shortages have hindered the production of automobiles, driving up prices. Furthermore, freight rates have increased by more than 10 times due to port disruptions and a lack of shipping containers. These have led to an increase in cost of production in Singapore for firms, causing firms to raise their prices to protect their profit margins or go out of business. Singapore has maintained its 2022 GDP growth forecast for this year at 3 to 5 per cent. Moving forward, Ministry of Trade & Industry said the economy will continue to grow, albeit unevenly, in 2022. It noted that the outlook for Singapore's external demand has "deteriorated slightly" since its last report in November, as many economies tightened restrictions to combat the highly transmissible Omicron variant. ICA 1 Guide / BM0008 / Page 3 Global supply bottlenecks remain and are expected to persist throughout the first half of this year. This may constrain industrial production and growth in some external economies in the near term. These persistent supply chain snarls, alongside rising energy prices due to geopolitical tensions, have also exacerbated global inflationary pressures. Source: Adapted from CNA,15 Feb, 17 Feb 2022.

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