FIXED- and low-income Singaporeans are among those watching with greatest concern the rise in price levels here. Inflation, which has long seemed a tamed beast, is rearing to life again, eating into purchasing powers of those who can least afford it.

Rising food prices, transport fares, utility rates all inflict pain.

But an added blow is felt when inflation begins to outpace returns on bank and finance company fixed deposits. Interest on savings has mostly kept up with inflation in the last 20 years. Bank savings and 12-month fixed deposits yielded 1.94 and 3.02 per cent respectively. Finance companies paid marginally more. These rates were slightly ahead of inflation, which averaged 1.5 per cent over the same period.

But rising oil and food prices in the current trend drove the consumer price index (CPI) to 3.6 per cent in October this year, up from 2.7 per cent in the third quarter.

So, how are savers to continue playing it safe? What does the trend portend if the incentive to save is diminished? There seem to be too few alternatives.

The Central Provident Fund is the only ready shelter (which is an irony, considering that many if not most members want to withdraw their CPF savings as soon as they reach 55). The prudent could retain their money or contribute as much as they are eligible to do so to the special or retirement accounts, earning 4 per cent a year.

Beginning in the new year, they will get an additional 1 per cent but only on a combined maximum of $60,000. The balance, in the special, medical and retirement accounts, will earn 1 per cent more than the 12-month average yield on 10-year Singapore Government bonds, which may or may not add up to 4 per cent.

However, even this level of interest will barely keep savings above water, with inflation forecast to spike early next year to as high as 5 per cent.

Singapore has successfully weathered high inflation in the past. The CPI shot past 8 per cent in 1980 and averaged over 20 per cent during the 1973 and 1974 oil crises.

Precisely because inflation reached such heights so long ago, a new generation of risk managers has emerged which is quite unfamiliar with extracting even matching returns on safe investments.

Can banks, levying fees on small savings accounts and preferring higher-income investors, not aggregate these savings for inflation-beating investment?

As the ranks of fixed-income people grow with the rising number of retirees, the market may be sizeable enough. A Straits Times reader's suggestion that the Monetary Authority of Singapore issue inflation-indexed bonds in small denominations is an interesting proposition.

Small savers would appreciate a lifeline.

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