Inflation Heads for a Higher Plane
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Inflation
Heads for a higher plane
Global Singapore slowly takes on new cost structure of other advanced cities. By Seah Chiang Nee, littlespeck.com
May 12, 2007
FOR reasons that are both foreign and domestic, people are gearing themselves for a surge in their cost of living this year.
Some are fearful that SingaporeÂ’s transformation into a global, wealthy hub with millions of foreigners heralds a new era of expensive living, just like Paris or Tokyo.
For now, the major public concern is a rise in the Goods and Services Tax (GST) from 5% to 7% in July, which is likely to exacerbate the series of worrying price increases over the past year.
This contrasts sharply with sanguine government statistics in the Consumer Price Index (CPI), which show prices remaining low and under control.
However, like in other modern countries, there is a public perception that inflation is actually higher than reflected in the official figures.
SingaporeÂ’s index follows world standards, but even in Britain, many households polled in a newspaper believe that the real cost of living is four times the governmentÂ’s published rate.
Economists have projected the CPI this year to be around 0.8%, the average of the past seven years, but others are more pessimistic.
Since general elections a year ago, the government has announced a number of increases, ranging from big items like healthcare, public transport and electricity to less significant ones like postage rates.
A sample of recent headlines:
* An increase of 1.7% in bus and train fares.
* Private doctors can now set their own fees, instead of referring to established guidelines. “Beware spike in doctors’ fees” warns a newspaper editorial. Architects to ask for similar treatment.
* Government hospitals raise charges for in- and out-patients by 4% to 43%. Fees at community polyclinics follow.
* Surge of 20% for car parking in Central Business District.
The GST increase will affect most things, from cars to carpets, and from TV sets to table-fans sold in supermarkets, as well as shopping malls, restaurants, and any outlet with annual sales exceeding S$1mil (RM2.2mil).
Indirectly, the ripple effect will be wide since businesses will probably pass on the higher operating costs to customers.
Traditionally, because of its reliance on the world for most of its necessities, especially oil and gas, this city has always been vulnerable to imported inflation.
No one, however, expects the CPI to reach anywhere near its historical high of 22.3% recorded in 1974, when the price of oil quadrupled.
However, today’s global Singapore – with hundreds of billions of foreign dollars and a million foreigners – is slowly taking on a new cost structure similar to other rich cosmopolitan societies.
In line with high-cost European cities like Brussels and Bonn, some restaurants in Singapore have begun charging customers for drinking water.
Recently, a friend had a normal meal for a family of nine at a Chinese restaurant and was shocked at the bill – S$940 (RM2,100).
“The menu had no price listings, and we had no idea,” he complained.
At least, it didnÂ’t charge him for the birthday cake he brought there to celebrate his grandmotherÂ’s birthday.
Rich lifestyles, of course, are being blamed as the chief culprit, but that is not the whole truth.
Other causes are SingaporeÂ’s embrace of high technology, computers and hand-held gadgets, once luxuries, but now considered necessities. Software and upgrading are all adding their way to everyoneÂ’s life.
Making matters worse is frequent media hype about a flourishing economy and rising demands (in stocks and property).
They create an exaggerated concept that Singapore has become as rich as New York or London, so businessmen charge accordingly.
Rents in commercial and private residences, for example, have jumped by as much as 70% in premium areas.
The 60% pay rise (over two years) for Cabinet ministers has also exerted a powerful influence on the inflation scene in Singapore.
There seems to be a growing preoccupation with profits and a belief that cost increases are an inevitable regular process, irrespective of need.
A transport minister once explained why trains and buses were increasing charges when they were reporting large profits.
“It is better to stagger the increases regularly rather than in one big jump over a longer time,” he said.
Some businesses carry it to a ridiculous extent. Recently, a woman wrote to the press to complain that when she asked a food kiosk for water to make powdered milk to feed her baby, she was charged 50 cents (RM1.10) to fill the bottle.
Economists who believe Singapore will enter a high inflation regime say the worst hit will be the poorest.
In the first half of last year, prices rose by 1.3%, but for the bottom 20% it was 2.2%. For the top 20% wage earners, inflation was only 0.7%.
Nevertheless, some fundamentals serve to reduce the cost of living: a strong currency and cheaper foreign manpower costs.
More important is the cheap, clean way of eating out at the numerous hawker centres and coffeeshops that dot the island. They help the ordinary people keep their daily budget lower than that of their counterparts in other global cities.
A worker can have a simple lunch or dinner for between S$4 and S$6 (RM9 and RM13.50). For 40 years, this has made costs more bearable for Singaporeans and visitors alike – but not many are betting that it will last.
The press recently published a number of reports about how profitable the hawker business is. This has fed speculation that it may be the prelude to a sharp rental rise.
i couldn't agree any less with seah that 'There seems to be a growing preoccupation with profits and a belief that cost increases are an inevitable regular process, irrespective of need.' -
First World prices.
Third World salaries.
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i would say inflation is generally govt-induced. Just look at the headlines quoted, 4 out of 5 of those hikes are by govt organisations or GLC.Originally posted by lotus999:Since general elections a year ago, the government has announced a number of increases, ranging from big items like healthcare, public transport and electricity to less significant ones like postage rates.
A sample of recent headlines:
* An increase of 1.7% in bus and train fares.
* Private doctors can now set their own fees, instead of referring to established guidelines. “Beware spike in doctors’ fees” warns a newspaper editorial. Architects to ask for similar treatment.
* Government hospitals raise charges for in- and out-patients by 4% to 43%. Fees at community polyclinics follow.
* Surge of 20% for car parking in Central Business District.
The GST increase will affect most things, from cars to carpets, and from TV sets to table-fans sold in supermarkets, as well as shopping malls, restaurants, and any outlet with annual sales exceeding S$1mil (RM2.2mil).
Indirectly, the ripple effect will be wide since businesses will probably pass on the higher operating costs to customers.
..............
Making matters worse is frequent media hype about a flourishing economy and rising demands (in stocks and property).
They create an exaggerated concept that Singapore has become as rich as New York or London, so businessmen charge accordingly.
Rents in commercial and private residences, for example, have jumped by as much as 70% in premium areas.
The 60% pay rise (over two years) for Cabinet ministers has also exerted a powerful influence on the inflation scene in Singapore.
There seems to be a growing preoccupation with profits and a belief that cost increases are an inevitable regular process, irrespective of need.
A transport minister once explained why trains and buses were increasing charges when they were reporting large profits.
“It is better to stagger the increases regularly rather than in one big jump over a longer time,” he said.
.......
i couldn't agree any less with seah that 'There seems to be a growing preoccupation with profits and a belief that cost increases are an inevitable regular process, irrespective of need.' -
An article by a blogger in UK that says about the high costs of living in Singapore:l
http://detailorientation.blogspot.com/2007/05/high-costs-of-living.html
10 May 2007
By lemiel.
I was chatting in a pub (several days ago) with a bunch of German colleagues while in Munich, and the topic came up about mortgages.
We were gossiping about another colleague of ours who has a large property and expensive living standards (not the vice kind) in Seattle, and it befell one of the guys at the table to remark that they would never love to live as dangerously as that.
That being an interesting comment, I obviously asked what she meant. And she said that in Germany, she could pay off her mortgage without really thinking about it, even if she had lost her job.
She felt that it was a dangerous way of living to have a mortgage that was so high to upkeep, that you have to keep on working and be more and more ambitious (ie. aim for compensation increases, promotions etc.) just to support the way you live.
Today again, over lunch, we were chatting about the costs of having a wedding, and I shocked the table with the estimate that it would cost on average around £150-£300 per head, I mean table, [Ed: I think the more discerning readers would have picked this up already] for a wedding dinner in Singapore.
And that 120 guests at a wedding was pretty small in Singapore standards, and pretty huge in Europe.
Cultural diversities aside, it did make me think that in comparison to Europe, it is a fallacy in Singapore that prices are low, things are cheap and living is easy.
And vice versa in contrast, with the British pound at an approximate 1 to 3 conversion rate, and the Euro at 1 to 2, prices are exorbitant, costs are prohibitive and you live like plebes in Europe.
I suppose it all boils down to the basket of goods we're talking about here. What do we compare our prices against? A can of Coke? A pint of beer? A glass of wine, or a house, a car, a wedding?
It honestly shocked me that one could live, work, and be able to have a mortgage on a place to live that doesn't cost the earth or your whole lifetime to repay.
Let's say the average price of an apartment or HDB flat in Singapore is about $450,000.
For a two income household earning averagely $3,000 per month or $36,000 a year, on standard interest rates, it would take about 58 years to repay the mortgage if it is 20% of income, 39 years if it's 30%, 29 at 40% and 23 years if it's 50% of income.
No wonder average loan terms are 25 years or so, which implies that most people's housing costs take about half their monthly salaries. And that's not counting the CPF of 20%, which goes towards it monthly and contributes to a house.
At those terms that I'm used to, how was it imaginable that one's mortgage could be a mere nothing that one could afford to repay without a thought if one suddenly lost a job?
Jobless not an option
With about half of income paying towards the bricks and windows and roofs over our heads, losing a job is not an option in Singapore.
Sure, the hawker food, clothes, and other superficial are cheaper and more readily available in Singapore.
But when it comes down to the basics, the house, the car, the doctor's fees and job security, the costs of living start stacking up higher in Singapore.
Perhaps we are surrounded by these things we take for granted each day that they start turning invisible - we assume we'll always have a job (because the government says the unemployment rate is low), we assume we'll always have a place to stay (because HDB flats are subsidized), we take public transport (because tickets are cheaper than in Europe).
But we work 10-hour work days and Saturdays to stay ahead. We stay in, eat out, try to keep healthy. Essentially we try to make up for the basics by filling as much superficials as possible.
I guess at the end of the day, the cost of living doesn't depend so much on where you are, but what you value, what your basket of goods are.
What you want depend on what you value. Apparently, what you pay for depends on what you value, but I think part of that goes the other way round as well.
I believe we can condition ourselves to think that we must pay high prices for certain things which other cultures have the luxury of taking for granted.
We pay high prices to live in that little island we call home - they pay high prices to take holidays to go to that little island we cram high prices on.