1. What is CPI?
CPI stands for Consumer Price Index. It's what you need to know for inflation: it's how you calculate inflation, the same way GDP is how you calculate growth. I use it to introduce price stability, one of four macroeconomic objectives alongside growth, employment, and a favourable balance of trade.
CPI tracks the price of a fixed "basket" of goods and services that a typical resident household buys, then compares that price to a base year. The base year is always set at 100.
So a CPI of 113.6 against a base year of 100 tells you the basket cost 13.6% more than it did in the base year. Here's what Singapore's actual figures look like:
| Year | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| CPI (2019 = 100) | 100 | 99.8 | 102.1 | 108.4 | 113.6 |
| Annual inflation rate | 0.6% | -0.2% | 2.3% | 6.1% | 4.8% |
Notice 2020: CPI fell to 99.8, a small deflation, as COVID suppressed demand. Then 2022 shows the sharpest jump, 6.1%, part of the global post-pandemic inflation surge.
2. The Inflation Rate Formula
Inflation is a sustained rise in the general price level, measured by a rise in CPI.
Here's 2022 to 2023 worked through: (113.6 − 108.4) ÷ 108.4 × 100 = 4.8%. That's the figure in the table above.
Deflation is simply a negative inflation rate: the general price level is falling, not rising.
3. What H2 Students Need to Know
CPI isn't a simple average of price changes. Each category in the basket is weighted by how much of the average household's spending it represents. I get these weights from the Household Expenditure Survey, and Singapore rebases the whole CPI once every five years, so the basket keeps up with how households actually spend. 2024 is the newest base year, replacing 2019.
Look at what shifted. Housing & Utilities went from 24.8% to 29.4% of the average budget, the single biggest increase of any category. Transport fell from 17.1% to 13.1%, largely because of lower spending on cars amid tighter COE quotas. Health rose from 6.5% to 10.1%.
None of this means "housing got the most expensive" or "transport got cheap". It means the share of household spending going to each category changed. That distinction, between a price change and a weight change, is exactly what the syllabus means when it says you need to understand "the base year and use of weights" conceptually. You're not required to calculate the index from scratch, but you do need to read and interpret it.
4. Where CPI Can Mislead You | The Flaws of CPI
Three genuine difficulties sit behind every CPI figure, and this is the section that actually earns you marks in evaluation.
- i. No basket is truly representative. Different households, different incomes, different races, different preferences, buy different things. Even one household's spending changes over time.
- ii. A "representative price" is hard to pin down. The same item can sell at different prices by location, season, or quality tier. A newer phone costing more partly reflects better features, not pure inflation, which makes the "same item, same price" assumption shaky.
- iii. Weights can't fit every household. A family with a car spends very differently on transport than one without. An HDB household spends differently on housing than a private property owner. One national average can't represent either exactly.
5. How This Shows Up in Your Exam
The CSQ question types apply directly to CPI data:
- Trend (1–2m): "State the trend in Singapore's CPI between 2020 and 2023."
- Compare (2m): "Compare the change in weight of Housing & Utilities and Transport between the 2019-based and 2024-based CPI."
- Relationship (1m): the direction of movement between CPI and another variable given in the data.
- Short answer / definition (2–7m): defining CPI, disinflation, or explaining why CPI may understate cost-of-living pressure for a specific group. You might also be asked how a fall in CPI affects standard of living, so make sure you can trace that link both ways.
At essay level, CPI turns up in two places. First, standard of living essays, where you're often asked to judge whether the indicators given (CPI among them) are sufficient to assess SOL. I'd want your answer to draw on the three flaws above. Second, price stability essays, which bring in causes of inflation and the policies used to manage it. That's a big enough topic for its own article, so I'll leave it there for now.