Inflation of Singapore

 Introduction

Last December, Singapore’s inflation, which is defined as a persistently rising price level, rose to 5. 5 per cent on a year-on-year basis. The author states that CPI inflation is due to the accommodation and private road transport higher contribution. Furthermore, the author also mention the MAS core inflation increased to 2. per cent year-on-year due to the ongoing pass-through of earlier increasing costs. The report from December’s MAS’s Recent Economic Developments in Singapore further supports the author’s article. In this discussion, it could be argued that consumer demand for housing and transport are the major factors, which Department of Statistic Singapore reported, contribute to the increment in inflation. In addressing the challenge of the governments to meet the consumer demand, the paper will mention a few discussions and a recommendation about the issue on inflation of Singapore.

CPI and MAS Inflation CPI inflation CPI, or Consumer Price Index, measures the average of the prices paid by urban consumers for a “fixed” basket of consumer goods and service (Michael Parkin, 2011). In Singapore, the major contributing “fixed” baskets are Housing, Food and Transport. In total, these three factors are more than half of the entire CPI. Data extracted from the December 2011’s CPI report is using year 2009 as the base period, which is derived from a Household Expenditure Survey.

MAS inflation MAS’ core inflation is stated as a smaller amount than the CPI inflation in this article. This difference is due to MAS monitoring a core inflation measure that excludes components of “Accommodation” and “Private road transport”. Private road transport Data from Department of Statistic Singapore states that the overall inflation of transport increased 10% from last year’s December with a detailed 12. 2% increment for the sub category “Private road transport”. Singapore Government controls the number of vehicles on the island via placing a quota on COE.

In mid October 2011, the Singapore Government announced that the annual growth rate will be decreased smoothly until end of 2014 as vehicles population is growing faster than the government’s vehicle growth rate (Tony Ng, 2011). With the sharp increase in COE premiums in June and July 2011 (MAS, 2012), car prices surged, therefore defining the 12. 2% increment in “Private road transport”. As COE supply is tight, private road transport costs will remain firm. Hence, contribution to the increased inflation is not entirely from private road transport, but from the other main “fixed” basket, Accommodation.

Accommodation Singapore’s economy recovered fast unexpectedly, this is good news but with backlash as Singapore’s infrastructure programmes could not keep pace, causing shortage in the housing program (Prime Minister Lee Hsien Loong, 2011). Since property cooling measures were introduced by the government in year 2010, properties firms claimed that the number of deals closed have dropped by 30% compared to a year ago (PropertyWire, 2011). One of the new measures is that home owners being required to sell off their flats first before qualifying to the higher bank loan of 80% of next purchasing flat’s value.

Most sellers prefer buy first, then sell (Eugene Lim, 2011), causing them to disqualify from the higher loan and only facing with the maximum 60% loan from the banks. Now they have to produce 40% of purchasing flat value from their own cash. With such conditions, sellers are commanding higher cash premiums or cash over valuation (COV) resulting in more expensive or inflated resale flats. On the other hand, people who turn away from resale flats, with factor from the supplies of new flats that are slow in completion, are looking into rental accommodation.

The other new cooling measurement the government has introduced is the Minimum Occupation Period (MOP). It is defined that flats can be only being rented out after five years, increased from the previous one to three years period. As more Singaporeans and other people in Singapore are looking for completed dwellings, the inflation in accommodation is caused by high demand and low supply. Recommendation [pic] Supply and Demand Graph Source: Irena Asmundson, 2010. Demand and supply curves are charted as shown above.

As prices rises, suppliers are willing to produce more and consumers buying less (Irena Asmendson, 2010). In addition, the demand for accommodation is high and the supply is low, Singapore accommodation’s price has inflated. To solve this increasing demand and shortage of accommodation, Singapore government has been producing more HDB apartments. From the key statistic from the Housing and Development Board, there are 43,030 apartments under construction in the fiscal year of 2010/2011, a 20. 8% increased from the previous fiscal year.

A huge increase of 68. 6% apartments completed from the previous year further reinstate the government’s effort to lower the shortage of accommodation, but the total bookings for new flats are 17,419, less than half the number of apartments under construction. This difference can be defined as a huge number of unsold or surplus apartments as HDB in the market. If this is to be true, the huge number of unsold apartment will lower the prices, causing suppliers to produce less and consumers buying more. Conclusion

Singapore CPI inflation rate in December is hugely contributed from the factor of accommodation and private road transport. In conclusion, the increased COE premiums and accommodation shortage can the detailed explanation. The Singapore government has been doing readjustment in the property market and private road transport. With introduction of new cooling measures and building of more new apartments, the government can curb or lowered the accommodation inflation rate. Inclusion with the huge surplus of unsold apartment, the accommodation inflation rate can be lowered to with the demand and supply law.

References

1. Michael Parkin, 2009. Economics. 10th edition. Pearson Addison Wesley Department of Statistic Singapore (2012, January 25). Singapore Consumer Price Index December 2011. Department of Statistic Singapore. Retrieved from http://www. singstat. gov. sg/news/news/cpidec2011. pdf [Accessed 6 February 2012]
2. Matthew Bishop (2004, April). Economics A-Z. The Economist. Retrieved from http://www. economist. com/economics-a-to-z/i#node-21529397 [Accessed 6 February 2012] Monetary Authority of Singapore (2011, December 8).
3. Recent Economic Developments in Singapore. Monetary Authority of Singapore. Retrieved from http://www. mas. gov. sg/resource/eco_research/eco_dev_ana/Recent_Economic_Developments. pdf [Accessed 7 February 2012]
4. Tony Ng (2011, October 19). COE premiums hit record hit. AsiaOne Motoring. Retrieved from http://www. asiaone. com/Motoring/News/Story/A1Story20111019-305931. html [Accessed 8 February 2012] Prime Minister Lee Hsien Loong (2011, August 14).
5. National Day Rally 2011. Prime Minister’s Office, Singapore. Retrieved from http://www. pmo. gov. g/content/pmosite/mediacentre/speechesninterviews/primeminister/2011/August/Prime_Minister_Lee_Hsien_Loongs_National_Day_Rally_2011_Speech_in_English. html [Accessed 8 February 2012]
6. Property Wire (2011, October 10). PropertyWire, Asia. Shortage or resale flats driving up prices in Singapore. Retrieved from http://www. propertywire. com/news/asia/singapore-real-estate-shortage-201110105661. html [Accessed 8 February 2012]
7. Irena Asmundson (2010, June). Finance and Development. Back to Basic: Supply and Demand. Retieved from http://www. imf. org/external/pubs/ft/fandd/2010/06/basics. htm [Accessed 9