Singapore’s major source of external demand-pull inflation is
the rise in income of her trading partners, which lead to the rise of their
households’ purchasing power and causes an increase in the demand for
Singapore’s exports. When there is a rise in Singapore net exports, her AD
rises, leading to the rise in the GPL. This can be seen when countries like the
US recovered from the 2008 global financial crisis. As the US is one of
Singapore’s main export market, when the US’ national income rises, the demand
for Singapore’s export rose. Since the value of Singapore’s exports is more
than twice the size of her domestic economy, there will be a significant impact
on the AD and hence GPL.

Another source can be the rise of there might also be an increase
in Foreign Direct Investment (FDI). Given a higher expected rate of return of
investing in Singapore when external demand rises, and the fact that
multinational corporations (MNCs) which produce in Singapore tends to be
export-oriented, FDIs will be attracted to Singapore. An increase in FDI will
lead to a rise in AD and hence on the GPL.

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Singapore can also face demand-pull inflation from domestic causes.
When the Singapore economy recovered from the 2008 financial crisis, the purchasing
power of households rose. Furthermore, with the influx of foreign workers
coming into Singapore, this also increased the domestic C and AD, and hence
GPL.

A source of cost-push inflation in Singapore would be the
increase in global demand for raw materials or commodities such as food and
oil. This increases the unit cost of production as these raw materials are the
important factor of production, causing the AS to rise upwards and therefore
raising the GPL in Singapore, leading to cost-push inflation. For example, in
2012, the average crude oil price was at historically high levels because the
OPEC restricted their oil production. This was a significant cause of
Singapore’s high inflation rate that year since demand for her imports is price
inelastic, and with little or no substitutes to the imported raw materials like
oil, the GPL in Singapore rises.

Another source of Singapore’s cost-push inflation would be
the government’s efforts to cut down the inflow of foreign workers. By tightening
foreign labour policies, it will lead to the overall labour force to rise at a
slower rate than the demand for labour, which gives rise to the labour shortage
and a rise in the wage rate. With the rise in cost of production, AS shifts
upwards and lead to cost-pull inflation.