| Yawning
Bread. 12 February 2008 Inflation has hurt poor more than rich
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Last night, Channel NewsAsia reported [1] that the upcoming
government budget
would include measures to mitigate high oil and food prices, as well as inflation, on a long term
basis, according to Lim Hwee Hua, the Minister of State for Finance and
Transport.
She said: "The government basically has to do whatever it can to sustain on the longer-term basis in terms of measures, in terms of what is realistically possible if it is from external factors." (Evidently, she's not the most succinct of speakers.) The government will be releasing its budget for the next fiscal year on 15 February. Over the last 6 - 12 months, virtually all Singaporeans would have encountered significant price increases. Each of us probably has some anecdote or other to prove how dramatically prices are increasing. A more sober assessment of the situation, however, must rely on statistics, and the data provided by the Department of Statistics in their latest Monthly Digest of Statistics [2] is worth reviewing. With 2004 as the base year, the table below shows how the Consumer Price Index (CPI) has moved through the 12 months of 2007:
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The same figures are represented by a graph
thus:
As you can see, prices moved, on average, just about 1 percent between 2004 and the end of 2006. Then they climbed more than 5 percent in the 12 months since, with the biggest monthly leap occurring in July, the month when the Good and Services Tax (GST) increased from 5 to 7 percent. Even after that, prices continued to rise, as food and oil prices climbed globally. Indeed, the data captures a picture of price inflation through 2007 consistent with the many anecdotes we hear. However, inflation does not affect all income groups equally, since different groups have different spending patterns. The Statistics Department provided a breakdown of these patterns, drawn from household surveys:
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"Housing" does not mean only rent
-- in fact, most Singaporean families own their own apartments and do not
pay rent -- but expenses related to accommodation, including water and
electricity, and conservancy charges.
"Recreation and others" includes tobacco products and alcoholic beverages and things like cinema tickets and holidays abroad. The lowest 20 percent of households by income spend a larger proportion of their income than the rest on food, housing and healthcare -- the necessities. They spend a smaller proportion of their income than the others on clothing, transport, communication and education. I suspect that not only do they spend less on recreation, the items that make up "recreation" may be quite different between the poor and rich households, but there is no data to this degree of detail in the publication. Simple observation shows that the lower income groups tend to smoke more, for example, while air travel probably doesn't figure in their plans. The next table shows the CPI for the various income groups, for the top 4 item groups: food, housing, transport and communication, recreation and others. The figures are for half-yearly periods, from 1st half 2005 to 1st half 2007.
The same figures are represented by these graphs below:
All income groups seem equally affected by food price inflation, but a distinct picture emerges when it comes to other expenditure sets. The lowest 20 percent of households by income (red lines) experienced inflation more severely over the 30 months recorded, compared to the other income groups.
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What I found most striking was how, for the
top 20 percent, transport and communication expenses fell quite
significantly through this period. Being most likely car owners, they
benefitted from declining prices for Certificates of
Entitlement [3], while those taking buses and taxis
faced creeping price increases. Also, being heavier uses of mobile
telephony and broadband, the middle and upper classes have benefitted more
from declining telecommunication rates.
* * * * * I hope the above has provided a
bird's-eye view of the inflation situation in Singapore, in the lead-up to
Budget Day. It's never easy for a government to do very much about
inflation that has external sources, particularly in an economy that needs
to remain open, like ours. I, for one, shall be very interested in seeing
what they think they can do, but more importantly, if it adequately
addresses the fact that inflation affects the poor more than the rich. © Yawning Bread
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Footnotes
Addenda None
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