Monday, November 5, 2007

Cost of Living and the Need to Limit Spending in Singapore

The recent sharp increase in house prices and general cost of living have caused Singapore’s ranking on the latest Cost of Living Survey by Mercer Human Resource Consulting to climb from 17th to 14th, just ahead of New York, US. Although the Singapore government has stated the Consumer Price Index (CPI) of Sep 2007 to be only 2.7% more than the same period last year, I believe the figures do not reflect reality as it does not seem to give an accurate picture of Singaporeans’ expenditures.

In Singapore, if you are not earning a lot and unmarried thus may not see the need of owning a property to start a family, I think it is still “liveable” if you stay with your parents. However, life changes once you have a family to raise. Financially, it becomes more challenging: There is now a need to pay for your own HDB flat, buy a family car, pay for your kids’ necessities and tuition fees, take up essential insurances for all family members etc. It becomes harder to maintain a family with 2 or 3 children under the same roof.

And without conscious efforts to limit spending and to keep a close eye on your money, expenses can balloon to unexpected amounts if the rising cost of living were to continue uncontrollably. No wonder more and more Singaporeans find it hard to survive in Singapore:

Grocery bills increase as prices for foodstuffs go up

ST check finds that basic items in random basket of goods now all cost more By Marcel Lee Pereira & Lin Xinyi, Straits Times.

A TRIP to the supermarket will cost more now than it did at the beginning of the year. A Straits Times check on a random basket of basic goods sold at supermarkets here revealed price increases in almost every category, from fresh chicken to coffee and milk formula.

For instance, a popular brand of luncheon meat cost $1.70 in January, but now costs $2.50. Then, fresh whole chicken sold for about $4.50; the price is now closer to $5.20. This, on the back of news last week that noodle and bread prices were on the rise. But Singapore is not alone: Prices of bread, pasta, potatoes and meat are going up, putting pressure on family budgets around the world.

Russia imposed Soviet-style price controls on a range of foodstuffs last month. China has released stockpiles of pork, while Bangladesh, Jordan and Egypt are raising subsidies or slashing import tariffs. Suppliers The Straits Times spoke to said droughts in Australia, crop failures in the US, reduced milk production and higher cost of tinned food cans are all contributing factors.

Globally, prices of wheat and milk are at historic peaks. Corn and soyabean prices have also risen steeply, and international wheat prices have risen nearly 74 per cent since January. With higher grain costs, feed will become more expensive, and suppliers say this will mean a rise in meat and milk prices.

Rising food prices have contributed to inflation here. September's overall Consumer Price Index showed that prices generally retreated by 0.3 per cent from the previous month, but the food component - the biggest item at 23 per cent - rose 3.7 per cent as the cost of fresh vegetables, fruit, seafood and milk powder, as well as hawker and restaurant food, went up.

Consumers The Straits Times spoke to said that while increases for each item may seem like a token sum, together, they add up to a much bigger grocery bill. Housewife Cynthia Leow, 30, told The Straits Times she noticed she was paying about $10 more during her weekly supermarket trips.

Similarly, Ms Huang Ya Li, 60, said she needed to set aside an additional $20 a month for groceries, compared with the start of the year.

Mr Yeo Guat Kwang, president of the Consumers Association of Singapore, said that price increases were inevitable, with the climate playing a major role in food shortages. But he said things were not as bad as they seemed. Consumers, he said, had the option of buying house brands from supermarkets, and these were generally cheaper. Supermarket chain NTUC FairPrice said its house brand products are, on average, priced 10 per cent to 15 per cent lower than comparable national brands.

Checks revealed that bread and butter prices for FairPrice's house brands have remained steady over the past 11 months, but there have been 15 cent to 25 cent increases for coffee and cooking oil. Besides food, prices of tyres and batteries are also going up. The past 11 months have also seen increases in the goods and services tax, public transport fares, fuel prices and rents.

And now, more hawkers are giving notice that they may not hold out on price increases much longer as they are also feeling the pinch. The owner of a handmade noodles stall at the Gourmet Paradise foodcourt in the Toa Payoh HDB Hub said she is hoping to charge 20 cents to 30 cents more for every bowl of noodles from next year to cover costs. She said that rental on her stall, which is now $4,500 a month, is set to rise to $5,500 at the start of next year, and then to $6,500 in 2009.

In the meantime, Ms Huang said she was doing her best to be cautious with her spending: 'If a meal at a coffee shop is $3 or more, I will look for something cheaper. I eat to fill my stomach, so it does not matter whether the food is nice or whether I am given more ingredients.'

Also see my article on The future is bleak: Rising Prices and Widening Income Gap


Anonymous said...

"...the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation." - Asia Sentinel (2 Nov 07) - "Damned Lies and Statistics?" & "They Have Got to be Kidding" (Euro Pacific Capital, 1 Nov 07) - link

5 Nov 2007

To: PM Lee Hsien Loong
cc: various

I refer to my Nov 1st email (attached below) questioning the reliability of the Monetary Authority of Singapore's ("MAS") estimated "low official" inflation figure in Singapore for 2007.

Why are inflation (CPI) numbers critical to GDP growth numbers? The attached article, from
Euro Pacific Capital, 1 Nov 07, "They Have Got to be Kidding", and Asia Sentinel, 2 Nov 07, "Damned Lies and Statistics?" shows how these 2 sets of numbers are correlated. (For additional reading on how these numbers can be manipulated, read Daily Reckonings' US Economy Grows 3.9%…More Proof That Numbers Lie ' by Bill Bonner, 2 Nov 2007 - link

So, if the inflation figure is understated (when using a lower GDP deflator), the GDP growth figure will likewise be overstated.

So, why should we care so much about these numbers? Many probably don't give a damn, but the ministers in Singapore do because their million-dollar yearly bonuses depend on them!

In Singapore's case, the central bank, MAS, expects inflation for 2007 to be around 1.5% although the citizens have been facing price increases of double digits (in some cases, up to 20% rise) in daily necessities like food, transportation, utilities, housing, healthcare, education, etc ? (refer Seah Chiang Nee's article in The Star newspaper of 3 Nov 2007, "..Increasing prices in just about everything has overshadowed the city state's prosperity in the last four years" - link For additional reading, refer to The Straits Times article of 5th Nov 2007, "Grocery bills increase as prices for foodstuffs go up" - link

In the Star article, Seah also says, "The (Singapore) government appears unable to take action to stop the epidemic (rampant price rises everywhere), a contrast to the first-generation government during such crises.".

Well, it seems that while the majority of the citizens are reeling from the rising inflation, the ministers are not only unaffected, but their salaries and bonuses are getting fatter: because, according to the MAS, it expects Singapore to achieve "...8 per cent growth this year".

Now let's take a closer look at the ministers' bonuses:

If GDP growth is 5% - 10% or more, yearly bonus can reach up to 8 months' salaries. So, for ministers earning $1.8 million a year, the bonus can amount to as much as $1.2 million, giving a total salary of $3 million a year plus benefits.

Is it any wonder why then are the rich in Singapore (including the ministers with their million dollar salaries and bonuses) getting richer while the poor (and the middle class too) are getting poorer with "real" double-digit inflation and stagnating/marginal wage rises and miserable returns (less than inflation rates) on their pension (CPF) funds?

Therefore, my question to the government: are the inflation and GDP figures reliable and independently verifiable by credible professionals?


November 1, 2007

They Have Got to be Kidding

Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.

To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!

Just in case there is some confusion, the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation.

The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession.

Similar illusions are created in other numbers, such as retail sales, corporate earnings, and stock prices, which are all rising merely as a result of actual inflation being higher than the official reports. For example, higher retail sales reflect consumers paying higher prices for the products that they buy. They may in fact be buying less stuff, but are paying more for it. Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.

Corporate earnings, particularly those of multi-nationals, are padded as their foreign currency denominated earnings translate into more dollars when those earnings are repatriated. However, such gains are illusions, as companies merely earn more dollars of diminished value for the goods they sell. The actual volume of exports does not necessarily improve much, as evidenced by weak industrial production and manufacturing employment. When those additional debased dollars are paid out as dividends, they confer no real increase in global purchasing power to shareholders.

Similarly, just as inflation causes prices to rise for goods and services it causes stock prices to rise as well. Though such gains may be less than the actual increase in the cost of living, as long as the government gets away with using bogus CPI numbers which fail to fully reflect inflation, Wall Street takes credit for nominal gains as if they were real.

However, as ridiculous as the phony GDP number was, yesterday’s biggest joke was a report on global competitiveness put out by the World Economic Forum in Davos, Switzerland, which ranked the U.S. economy as the world’s most competitive. To arrive at this conclusion, the forum has obliterated the obvious under a mountain of theory. In determining country rankings, the WEF weighed strengths in their "12 Pillars of Competitiveness", including: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. Completely ignored however are the measurable results of competitiveness, notably a trade surplus and a strong currency.

It is as if the WEF decided to judge a weight loss contest without using a scale, by instead focusing only on mental attitude, dedication, perseverance, and nutritional education! As a result the prize is awarded to the fattest contestant. Based on the empirical evidence of a gargantuan trade deficit, staggering global indebtedness, and a declining currency, the United States is clearly not the most competitive economy in the world.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

family man said...

wait - there is more. With means testing for C ward patients, we will judge you by the type of house you are living, or your salary. It does not matter if you have 3 children, your wife is not working, so that they have a better / best care giver at home and you have aged parents at home. You will have to pay B ward charges regardless of how many mouths you have to feed because you are in the middle income bracket. What has the govet / NTUC fairprice done to make things more affordable to Singaporeans?? I am still waiting for an announcement from the Govt after increasing the GST from 5% to 7% !!!

Anonymous said...

Incidental Singaporean

We must thank the 66.6%...

Paranoid said...

The current increase in prices of basic food necessities, CPF withdrawal age, housing cost is part of an elaborate control system to drain cash from Singaporeans and create indebtedness.

Indebted Singaporeans are easier to control as they have to worry about their bills and won't rock the boat when it comes to election.