Wednesday, November 28, 2007

Singapore's inflation rate- Worse to come?

Hi Friends,

Of late, we have had a slew of shocking news about inflation rates hitting 16-year highs and even political leaders confirming that this would peak at 5 per cent early 2008.

This comes as no surprise to any of us. External factors like the US $100 oil barrels coupled with recent GST hikes to 7% and increased ERP rates of up to $5 (third hike in 2007,no less), must inevitably translate to higher costs of doing business and hence higher prices.

The mismatch in the supply and demand of residential and commercial properties certainly did not help to keep rentals down!

What is worrying is that most of us see this as only the beginning of an unhealthy upward trend and are not as confident as our leaders that this can be managed as planned.

In the recent parliamentary debate, the people were advised to choose cheaper alternatives to minimise the impact of rising prices. That is almost like Marie Antoinette, the Queen of France during the French Revolution saying,” Let them eat cake” when told that the peasants did not have any more bread!

Uncontrolled inflation arouses the spectre of hyperinflation like that of inter-war Germany ( see here & here) in the 1920’s. A loaf of bread that cost 2 marks in 1920, cost 430,000,000,000 (ten zeroes) marks in 1923. In pubs, Germans found that their second beer cost twice as much as their first, as prices rose hourly. When paid three times a day, workers hurried with their wheelbarrows of ever-depreciating currency to spend at the grocery before prices rose further. Those social upheavals were just what Hitler needed to get elected into power.

I admit that my anxiety is slightly exaggerated, but it is real. As are the concerns of our lower income citizens, who must once bear the brunt of yet another financial burden.

Dr. Huang Shoou Chyuan


Anonymous said...

Dr Huang,reading yr article on inflation rate,i have to agree with you strongly on what's going to happen in the next 6mths or so,the fact of the matter,what the govt will inform you is if we die,its not their concern,the govt only cares about filling their homogenous pay packets,if you look closely @ the ministerial pay package,its a whopping million dollar deal,which makes life easier for them,correct me if i am wrong,the middle income people are the ones driving the economy,yet they will be affected plus the plight of the low-wage income workers,what about them?Its a scary thought,its harsh reality,but i'm certain you know,the rich will beomce richer,the poor will become poorer,i do stongly hope for the sporeans(66.6% who voted for PAP),seriously,they have a lot of soul searching to do,my friends here in london are telling me,situation in spore will only chage if Spore becomes a welfare state,till today,it is still a Godfather state....James Michael

nofearSingapore said...

Hi James
It is extremely tough to be poor or lower middle class in S'pore.
The rich ( or highly skilled) gets richer cos there is demand for them all over the world, but the poor ( or poorly skilled) are in deep shit cos they always compete for jobs with foreignors who don't mind low pay due to favourable currency exchange rate. So the menial jobs/ lower status white colour jobs will remain low paying.
Why the govt have to choose now to increase property tax etc really baffles us. Maybe they are striking while the iron is still hot. If the try to increase taxes when the inflation has gone sky high and economy rock bottom, they may get a riot on their hands.
Yes, let's sit tight and see the circus when they raise their own million dollar salaries.
Most of us feel that only very few Ministers are actually close to being worth what they are paid.
The rest will sink into oblivion when thrown into the private sector!

Anonymous said...

If LKY want more $$, I'm sure Singaporeans have no problem with that being one of the founding Father of Singapore.

But not the rest of the current Ministers who IMHO don't worth a million dollar. They lack passion to serve Singapore and only serve for the sake of more $$.

The pay formula for Minister and MP is flawed and will only encourage more greed in Singapore. Bad for Singapore society if the top don't set a good example for the bottom to follow.

Look at NKF and you will know what I means.

nofearSingapore said...

Hi anon 1.36:
Most of older gen have no problem equating LKY with Sg's economic success. There is also something good about paying govt officials market rate...
But the disagreement is with the formula ( as you have said).
It cannot be correct that Sg's leaders should be the highest paid in the world.
I don't think many of the ministers do this for money but I think if we can get Sgporeans to feel more for this nation, it should not be difficult to get good people to serve whilst paying market rate ( and I mean market rate and not supra-market rate).
Their jobs are risk-free ( compared to private sector) and after they leave office, they still get directorships (Ministers/MP's), use their connections for their own private enterprise (MP's).
Where is the sacrifice? Not that I can see. ( only loss of privacy - so no dirty weekends ( I think!))


Anonymous said...

What then are the options for the man in the street?

Do we curb our spending? Save like mad? Or..

Now cannot say "huat ahhh!" liao.. ;-(

nofearSingapore said...

Hi anon 10.32:

Save also cannot cos the interest rate in the bank is lower than the inflation rate. So your $1 tomorrow lagi worth less than $1 ( time value of money).

Personally, I am on lookout for investments that have returns that is more than inflation rates. This of course depends on your risk profile ie your age and which part of life-cycle you are at etc.

If one is young, can take longer view of investments and also take more risk. For this group, when the stock market next crashes ( it must inevitably cos nothing goes up in a straight line), use your investment funds to buy index-link counters eg STI-ETF . According to many gurus ( including Warren Buffet and others), it is very difficult to find undervalued stocks ( due to Efficient Market theory), so the most logical way is to buy into a portfolio of well diversified fund to reduce risk ( Portfolio theory of Markowitz). So, when there is blood on the streets of Wall streets and outside SGX, take a deep breath and buy STI-ETF.( Exchange Traded Fund)

The older ones ( who are poor)- are between rock and hard place, cos can’t take risk yet safe investments eg bank deposits, give paltry returns. If don’t need the money, leave the money in the CPF-SA ( cos better interests than most other deposits).

If only the govt could be persuaded to increase returns for CPF deposits.

The economically productive should try to ride with the economy cos, pay packages will rise. The younger ones should try to be more entreprenueral and look for opportunities to learn more and to take calculated risks in their industries/profession.

Altho I sound alarmist, actually, I am pro- free-market and am confident that with Tharman at Finance Min, he will continue opening up the market and give more opportunity for those with drive and ability to thrive.


Anonymous said...

U mean save in our CPF, dr huang?

Did U read the uproar over cpf woes: delaying takeout age, annuity scheme etc..

Do we or do we not - put in our cpf? Sigh..

nofearSingapore said...

Hi anon 4.41:
For the older folks who do not have a clue about investments and do not need the money urgently (eg give to some pretty China "friend"), it may be best option for them to leave it in the SA. The only risk ( which is not small), is the govt may prevent you from taking it out later).

I have no quarrels about annuities, but I am against forcing people to buy annuities with their own monies. Should be voluntary.

In SA- At 4% ( the rate is not great but better than bank deposit- which even the very privileged ( eg private/premier banking) get about 3 %.

BUT... if other countries can get better returns than ours, I don't see why the govt with their so-called geniuses cannot get more than what we are getting. There is always suspicions that we are short-changed.


Anonymous said...

OK thank u for explaining. I've already depleted my cpf in the roof over my head.. The loan repaymt with the priv bank with its increasing interest is a looming large load each mth.. What's the little left in my spec acc & medisave..

I've means to bring in the bacon. Save it. But no that sure how n what to invest & grow them..


travailling doc said...

Hi Dr. Huang.
Just came back home for a visit and am shocked by the rapid social changes in Sg. Prices of real estate has blown completely out of sight.
While friends and family are congratulating themselves that their assets are now worth millions and even patting me on the back that luckily I have not sold off my home and clinic and should now be beaming to the bank.

Just pondering. Is this just hype and false euphoria. In 2003, I was in Florida. The property market was in full steam as prices skyrocketed. Foreign interests poured in and home owners were all upbeat and buying second homes on credit.
Now,today, you know the rest.
We in Sg have gone through these cycles and the fall unfortunately can be merciless for many.
My humble observations are that the Sg economy is based on more perceptions than on sound fundamental basics.The increase of pay and the civil service only will signal the businesses to come and increase their fares and prices.
It always had been and now is again apparent.Everyting becomes inflated. It looks good for the investors and foreign buyers to come in. But at what costs to the rest of the people????
When the property became too hot in the 90s, the Govt came in with controls. The property market went burst and into an almost 10 years depression., and the Sg economy was in the doldrums with two back to back recessions, even as the rest of the world was in prosperity.

I think that the Govt will keep up inflation and the property maket ballooned out to sustain the Sg economy in its inflated course, so long as taxes can be collected.
I call this the economy of " inflation". This was what happened in the late 70s went LKY jacked up salaries and costs and brought on a period of high economic growth and expectations.
However, this is like a Heroin fix. It is high only for a period before another fix is needed.

I visited my neighbouring Cold Storage and was dismayed that 150Sg dollars only had me a couple of shopping bags of goodies that we missed. My wife said that with US$ 70 in China town, in Houston, we will have come off with bags that can only be carried in a car.

I have fear for Sg, and truly believe that it seems more than ever, that Sg lives for today and not for tommorow.
I did not buy my digital camera in Sg because it was cheaper in the US and looking at the PC which I want updated, it was cheaper in the US.

My expectation now is just when will the ballon blow up??

Regards, Travaillingdoc.

nofearSingapore said...

Hi travailing doc,
Thanks for dropping by.
By all economic indicators, eg GDP/per capita income etc, we seem to be doing well.
Most foreign academics have nothing but praise for us but...
The rich-poor divide is ever increasing, and the poor and lowly-skilled find their wages pressed down by foreign workers who don't mind low wages as these still translate to good money in their home currencies.
I just topped up my cash-card to $100 not so long ago, but find the residual cash value in it down to about $10 as it gets deducted ever-more quickly when driving past "traffic-control" and car-park gantries.
But travailing doc, the rich are getting richer and don't care much except sit around and grumble and then wait for their next ski trip to Whistler or Hokkaido.
The poor live from hand to mouth.
Like always, there is NO easy solution.


travailling doc said...

Hi Dr Huang,

Been pretty busy relocating and in a new place.
Very active and friendly locality.
Warm and sincere people. Hope to buy a home here and perhaps ship personal effects over from Sg.

Probably from feedback, cannot now retire in SG.

Can anyone verify the Sg GDP figures . The ones I got from the WHO figures are not too flattering. There seems to be a discordance.

Thanks and cheers.

Anonymous said...

I am a PR living in Spore for almost 4 years. The cost of living of spore is so high and the properties price especially the HDB flat is so expensive. Govt allows us to use CPF to pay loan. I don't think this is a good solution because we will eventually spend large amount of CPF to pay loan. What is left for us when we are old? The salary increment in spore is also so little (3-4% average) but the inflation rate is comparable to the salary increment. The rich will be getting richer but middle class ppl like me will suffer. Life is so tough in spore right now. Sigh!!! One more thing is the monthly rental fee could kill those who still cannot earn a home in spore. I would rather move to AUS or NZ for better quality of life.

nofearSingapore said...

Hi anon
Thanks for sharing with us your situation.
S’pore’s economic development is uneven. There is a wide class divide and the rich are very comfortable ( although they also grumble) but the poor are in desperate straits. If they are poor and uneducated and not innovative, they are the worst off as they cannot compete with the foreign workers who willingly work for less ( when they convert S$1000 to their currency it is still good).
In S’pore you have to retrain yourself and all the time think how you have to improve yourself to survive. I agree that it is tough. The only advantage is that there are many opportunities to upgrade yourselves with courses/diplomas/degrees etc. But these require time and effort and also money. With better training, it is easier to find better paying jobs.
In my MBA class, we all struggle along but throughout this more than one year of studies, many of my class mates have taken better jobs and higher pay. In S’pore, if we relax, we will die as others will copy our business model and steal our customers etc.
Inflation is also really eating up our real income. I don’t think the govt will be able to handle this esply if oil goes above US $100/barrel. Rentals and house prices have climbed due to enbloc sale effect and the increased demand from foreign workers and new PR’s/citizens.
Don’t be discouraged- you must know what you want in life. If it is wide spaces and cheap cars/houses then S’pore is not the place. There are some things that are good here too-safety/convenience/efficiency. Healthcare is good ( but is expensive in private hospitals and higher class govt wards).

Nizar K. said...

Hi all,
I think that the current exchange rate regime of Singapore has showed a clear signal of weakness regarding the significant domestic inflationary pressures. In other words, the Peg to a basket of currencies has the significant weakness of still not being able to fully control interest rates. This leads us to question the efficiency of this regime that some economists recommand to other countries suffering from high inflation rates, such as the Arabian Gulf countries...