4 Reasons Why Inflation Has Eased But Consumers Are Still Feeling The Pinch

Consumers are feeling the pinch of higher food prices and for certain goods and services.

Even though inflation has subsided in recent weeks, as seen by headline inflation easing in December, some items in the Consumer Price Index (CPI) basket have been stubbornly trending higher in price.

The reasons are due to various factors, including imported inflation, supply chain disruptions, and a tight labour workforce. The US Fed’s hawkish stance in inflation (although less hawkish) is still keeping prices firm.

Moving forward, shocks to global commodity prices and persistent domestic and external inflation continue to pose risks. China’s reopening could also push up global inflation, as higher demand could raises the prices of raw materials and energy.

Here are four specific reasons why consumers are not feeling much relief even with the ease in headline inflation.

Also Read: 4 Reasons Why Singapore Is The Most Expensive City In World

#1 Higher Inflation For Non-Cooked Food

Overall food inflation rose to 7.5%, up from 7.3% in the previous month mainly due to higher non-cooked food prices, according to December CPI data from the Department of Statistics Singapore (SingStat). Meat prices rose by 14.7%, while bread and cereals was up 7.2%. Milk, cheese, and eggs gained 8.5% in prices.

Food Items	% Change Year-on-Year
Bread & Cereals	7.2%
Meat	14.7%
Milk, Cheese & Eggs	8.5%

Under food serving services, hawker food inflation rose by 8.1% from a year ago, while restaurant food gained 7.3%. Meanwhile, fast food and catered food rose slightly slower, at 6.0% and 6.3%, respectively.

Food Serving Services	% Change Year-on-Year
Restaurant Food	7.3%
Fast Food	6.0%
Hawker Food	8.1%
Catered Food	6.3%

In a nutshell, food costs in various forms have risen, from non-cooked food to hawker food. Fast food is seen as the food serving service with the lowest increase in prices. However, we must note that fast food is not always seen as a healthier option.

As food is something we consume daily, when prices climb higher it is very obvious and will be noticeable.

#2 Cost Of Holiday Expenses Rose

Holiday expenses climbed 11.3% from a year ago, December CPI data from SingStat showed, as more people travelled overseas and increased the expenditure on these items following the easing of Covid-19 border control measures.

The larger increase in the cost of holiday expenses prompted overall services inflation to inch higher to 3.7% from 3.6%.

Revenge travel and holiday spending was also a reason that caused prices of holiday expenses to rise as demand outmatched supply. People who plan to travel are currently looking at airfare and hotel rates higher than pre-Covid-19 levels.

As the March holidays draw closer and more opt for short holidays overseas, it is unlikely for this segment of the basket to see any easing in prices anytime soon.

Also Read: Struggling To Cope With Inflation: 5 Things To Be Avoiding, And What We Should Do Instead

#3 Strong Housing Rental Demand Causing The Rise In Rental Prices

There is a strong demand for rental housing, with accommodation costs up 4.7% year-on-year, albeit at a slower pace, SingStat data showed.

Rental prices for private housing in Singapore jumped nearly 30% in 2022, the fastest pace in 15 years. Some reasons that contributed to the increase include delays in the completion of private housing projects.

The government had attempted to cool the rising HDB resale prices last September by implementing a 15-month wait-out period for private property owners looking to buy a non-subsidised resale HDB flat. But observers suggest that the curbs have caused a secondary effect of driving up the demand for private rentals.

Bloomberg Intelligence analysts predict rent to rise another 10% to 15% in 2023, driven by the country’s economic recovery, resilient employment, and inflationary pressures.

#4 Tight COE Quota For Cars Keeping Car Prices Firm

Car cost increases are likely to stay firm on the back of tight Certificate of Entitlement (COE) quotas for cars.

The Land Transport Authority (LTA) controls the number of new vehicles allowed for registration through a quota on the COEs. Everyone who wishes to register a new vehicle in Singapore must obtain a COE, which represents a right to own a vehicle for 10 years.

On 20 Jan 2023, the authorities announced the adjustment of the method for computing COE quota for bidding, which will yield 309 more COEs in this Feb to April period, a 3.4% increase from the previous quarter.

Although changing the way to compute the number of COEs available for bidding per quarter might lead to a moderation in prices, a major easing of rates aren’t likely to be anytime soon. This is because the adjustment is only a small change compared with the total numbers.

It costs more to buy a car now compared to the past, and the affordability of cars has shrunk over the years.

For reference, in Jan 2017 (first round), the premium for Cat B was around $50,000 with a quota of about 1,200. For Jul 2022 (second bidding), Cat B premium was $110,000 with a quota of around 520. This is because de-registrations are low (there are a lot of young vehicles on the road).

Although during Budget 2023 the taxes on luxury cars were raised, the changes are expected to affect the top one-third of cars by Open Market Value. Buyers of cars with an OMV of $40,000 or less will not be affected. This may drive the demand for cars with OMV of $40,000 or less higher, and cause the demand to surge and potentially raise the prices of cars in this segment.

What’s Helping To Mitigate Higher Inflation

Some consumer goods are still increasing in prices at a slower pace, thanks to supply chain flows. For example, fish and seafood prices and vegetables have risen by 3.6% and 3.7%, a slower increase compared with other non-cooked food items, according to SingStat data.

Healthcare services – including medicines and health products, outpatient services, hospital services, and health insurance – have also risen slower, at 3%.

Education services and items like tuition and textbooks have also risen slower, at 2.1% and 1.6%.

Consumer Items	% Change Year-on-Year
Fish & Seafood	3.6%
Vegetables	3.7%
Healthcare (Includes Medicines & Health Products, Outpatient Services, Hospital Services & Health Insurance)	3.0%
Tuition & Other Fees	2.1%
Textbooks & Guides	1.6%

The government has assisted Singaporeans through the Assurance Package to cushion the impact of the higher cost-of-living due to inflation and the GST hike. Support includes cash, MediSave top-ups, additional cash for seniors, and GSTV- U Save rebates for households.

During Budget 2023, it was announced that the government will hand out a one-time “cost-of-living special payment” to eligible Singaporeans who are 21 and above this year, have annual assessable income below S$100,000 and does not own more than one property. The payments range from S$200 to S$400, depending on how much income the individual earns. The payment will be disbursed in June to around 2.5 million adult Singaporeans.

Singaporean households will also get another S$300 in Community Development Council (CDC) vouchers in January 2024 and higher cash payouts under the Goods and Services Tax (GST) Voucher scheme.

Also Read: 4 Types Of Things You Cannot Buy Using Your CDC Vouchers At Supermarkets

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