I had another debate with my friend again regarding the cost of living in Singapore. Naturally, we referred to the article below, titled "Inflation could hit 5% early next year, then taper off", and argued about the notion of "spending less = lower cost of living = lower standard of living?".

Mr Lim, Singapore’s Minister for Trade and Industry, commented that by spending on alternative, cheaper goods, we can effectively lower the cost of living. However, some people seem to interpret that as lowering the standard of living.

To this, Mr Wang Says So argued:

Instead of saying that “switching to cheaper products can reduce the cost of living”, Minister Lim would have been more accurate to say, “switching to cheaper products can lower the standard of living”. For example, instead of living in a 5-room HDB flat, you can live in a 1-room HDB flat (a cheaper product). Instead of having chicken rice and vegetables for lunch, you can just eat plain porridge (a cheaper product).

Living in a 1-room HDB flat and eating plain porridge constitutes a lower standard of living. So yes, by switching to cheaper products, you can lower your standard of living. And a lower standard of living does cost less to maintain.

My friend shared the perception that, by spending on (possibly) lower quality (and hence cheaper) goods, there will be less demand for the costlier goods. Given such a scenario, it is possible for the costlier goods to cost cheaper since the demand is now lowered. After all, economics is all about demand and supply – and hence Mr Lim’s advice is not entirely wrong.

He also added that, it is not possible for everyone to stop spending – so people should spend less – perhaps on cheaper products, but not entirely stop spending because the entire economy will collapse. Thus to prevent either extremes from happening – (i) goods getting costlier (ii) economy collapsing, Singaporeans have to start spending moderately so that both goals become achievable.

From the point of economics, I have to agree with his points. However, the entity that we are talking about are humans, and not robots, and so a greater amount of PR has to be injected while getting people to face reality.

Mr Lim had been infamous for his statements when he was the health minister, which includes asking the women to "save on one hairdo and use the money for breast screening", his regret in intervening to admit a premature baby to KKH to save the baby’s life because "…in the end, the baby continued to be in intensive care, and KKH now runs up a total bill of more than $300,000…", and his call to raise hospital rates to hotel rates because "if these patients (hospital overstayers) want to treat hospitals like a hotel, then they’ll have to be charged hotel rates.", of whom mostly are likely to be older than 60, with no income, or are from families with incomes below $1000.

AS CONSUMER prices continue to rise, inflation in Singapore will likely surge to 4 or 5 per cent in the first quarter of next year.

But it should taper off by the second half of the year to ‘more normal conditions’, said Trade and Industry Minister Lim Hng Kiang yesterday.

The average rate for next year should be around 3 per cent.

Fuelled mainly by rising global oil and food prices, inflation recorded a 13-year high of 2.9 per cent in August. It is expected to dip to 2.7 per cent in the last quarter, Mr Lim told Parliament.

But it was his 2008 forecast that made analysts and consumers sit up yesterday.

Citigroup economist Chua Hak Bin said that the 5 per cent rate predicted would be a ‘historic high’ in the 25 years since 1983. The previous high was in July 1991, when it hit 4 per cent.

Most economies, including Singapore’s, size up inflation by tracking the Consumer Price Index, or CPI. The CPI measures the cost of a basket of goods and services consumed by most households.

Yesterday, Mr Lim cautioned against ‘interpreting a rise in the headline CPI as necessarily reflecting an increase in the cost of living’.

It depends on the individual household’s spending. ‘Switching to cheaper products can reduce the cost of living despite a rise in the CPI,’ he added.

A CPI increase may also not reflect actual hikes in consumer prices. For instance, flat prices soared, but flat owners do not pay rent.

Higher inflation, he said, should also be viewed against rapid economic growth, with the gross domestic product rising more than 6 per cent on average since 2003 and wages also on the up.

‘Against this backdrop, we should not be surprised to see inflation rise above the unusually low levels seen in recent years.’

However, MPs such as Madam Halimah Yacob worry that residents, especially the elderly on fixed incomes, are feeling the pinch. ‘They go to the market with a similar sum of money. But they can buy less,’ she said.

Mr Lim promised: ‘The Government will continue to keep a tight watch to ensure that inflation remains low.’

He sketched out how the landscape will look like next year.

Explaining why there will be a spike in inflation before it plateaus, he cited two reasons: First, it is as compared to the first quarter of this year, when inflation was at 0.5 per cent and oil prices were low.

Second, the ‘one-off’ effect of the goods and services tax hike, which will be felt until next June.

Thereafter, the trend will ‘revert to more normal conditions in the second half of next year’.

The numbers come against a global backdrop of rising oil and food prices, such as more expensive chicken due to costlier feed. Adverse weather in food-supplying countries has also reduced supply, even as demand has risen.

Diversifying sources is one way to maintain more stable food prices, Mr Lim said, but there was a limit to this given the worldwide increase in food prices being seen now.

But inflation has not affected Singapore’s economic competitiveness, he said.

‘We are tracking our competitiveness position very closely and so far we are in quite a good position,’ he said, adding that inflation here was lower than in other countries.

He noted that imported inflation has been reduced because of the policy of gradually appreciating the Singapore dollar.

Other watchers suggest more aggressive measures. Citigroup’s Dr Chua, for instance, believes that the economy is in danger of overheating.

He called on the Government to re-prioritise projects, given that unemployment is already at a low.

‘The economy cannot be growing at that pace – it is reaching a bottleneck, there’s a supply constraint, with wage, price, rent increases. It is costly for everyone.’

xueying@sph.com.sg

Article obtained from straitstimes.com dated 13th November 2007 on 17th November 2007



Reader's Comments

  1. arzhou (adrian) | November 17th, 2007 at 6:00 pm

    While the basics of Demand and Supply is there, I would like to point out that some products even if demand falls will maintain a high price due to an image. But of course this is more for luxury items then commodities that in general are already more or less evenly priced. I doubt it will be that easy switching to a cheaper toothpaste if nearly all toothpaste cost the same.

    I also do not mind buying cheaper products… can I have cheaper transportation cost then? :p

  2. Simply Jean » Blog Archive » Debate over standards of living - Part 2 | November 17th, 2007 at 7:04 pm

    […] from our previous debate over the standards of living, we now try to look at how Mr Lim’s solution can actually solve […]

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