Inflation
Heads for a higher plane
Global Singapore slowly takes on new cost structure of other advanced cities. By Seah Chiang Nee.
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 Singapore’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.

Singapore’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 government’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 didn’t charge him for the birthday cake he brought there to celebrate his grandmother’s birthday.

Rich lifestyles, of course, are being blamed as the chief culprit, but that is not the whole truth.

Other causes are Singapore’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 everyone’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.

(This was published in The Star, Malaysia on May 12, 2007)