Thursday, May 22, 2008

High cost of living? Buy cheaper products, says minister

Article from: Nov 2007

Recent price hikes have prompted several members of Parliament to voice their concern about increasing cost of living, especially with respect to basic necessities.

In the third quarter of 2007, the consumer price index (CPI) rose by 2.7% year-on-year, compared to 1.0% in the second quarter and 0.5% in the first quarter. Inflation is projected to hit a record 5% by 2008.

Yesterday in Parliament, Mr Lim Hng Kiang, Minister of Trade and Industry admitted that these were due to a ‘one off effect of GST hikes’ and mainly higher food prices.

In his response to MPs questions today, he also had this advice for families hit by higher prices: "Whether there is an increase in the cost of living for a particular household depends on that household’s spending patterns. Switching to cheaper products can reduce the cost of living despite a rise in the CPI."

What are the limitations of the Minister's advice? Suggest and evaluate other measures that could be more effective.

e.g. did you know we have a Price Control Act?

you may also want to download: Rising Prices - How Singaporeans Can Cope: A good pictorial summary of the causes of the recent inflation and what the government has been doing to help Singaporeans cope.

Wednesday, May 21, 2008

NWC calls for one-off payment to help workers cope with inflation, sustainable wage hikes

The National Wages Council (NWC), chaired by Professor Lim Pin
Weekend • May 17, 2008

IT was something unionists had been quietly hoping for. Even so, Ms Diana Chia was surprised when the National Wages Council (NWC) called for a one-off bonus from employers on Friday to help workers cope with high inflation.

"We did not know if it was going to happen," said the general secretary of the Healthcare Services Employees' Union.

In what has been called an "innovative" measure unprecedented in recent times — a response to inflation that has hit a 26-year high — the council urged companies to consider giving a "one-off special lump sum payment" to its rank-and-file workers, "with a heavier weightage for low-wage workers".

What some pundits are already terming the "inflation bonus" should take into account the company's ability to pay and the Government's recent $3 billion in assistance measures for Singaporeans, said the NWC. At the same time, the council repeated its call, which has become a familiar refrain in recent years, to keep wage hikes sustainable.

Built-in increases ought to commensurate with performance and business outlook; companies should make greater use of variable payment to reward workers, taking into account the total wage increase, said council chairman Lim Pin.

And as before, companies that have done "exceptionally well" should consider a higher variable payment.

Economists call the special bonus an unusual one, born out of a unique confluence of economic factors. While the council has recommended one-off payments before — such as in 1998, 2004 and last year — these were more closely linked to economic and individual corporate performance.

"We have not seen such inflation in a very long time and it comes during a sharp slowdown in the United States, and record energy and food prices," said Ms Selena Ling, an economist with OCBC.

Calling it a "sensible compromise", economist Chua Hak Bin, chief Asian strategist with Deutsche Bank, said the special bonus means workers are rewarded justly given the higher costs of living, without "fanning the inflation fire with large permanent wage adjustments (which) could be self-defeating".

In coming up with its recommendations this year, the NWC said it had taken two special considerations, among others, into account: The global economic uncertainty and high inflation this year.

Even as it noted low-wage workers' worries about the cost of living, it was also mindful that simply pushing wages up would undermine competitiveness – a concern fed by falling productivity and rising unit labour costs (i.e. labour cost per unit of output).

While the Government has accepted the NWC guidelines for 2008/2009 -- which apply to all private and public sector employees – questions and challenges remain.

For one, it remains to be seen if employers embrace the one-time payout idea. While the Singapore National Employers Federation (SNEF) and the Singapore Business Federation believe it would be welcomed, economists are more sceptical.

"Frankly, I suspect not all employers will necessarily follow this recommendation because NWC guidelines are non-binding," said Kit Wei Zheng, Citigroup's chief economist.

In theory, these recommendations are sensible and good, he added, but the tight economic situation also begets the question if companies "have enough space" to implement them.

But NTUC assistant secretary general Halimah Yacob said, employers should not see this as a "Santa Claus gesture". In the past, workers had accepted CPF contribution cuts and flexible wages in lieu of high fixed-wage increments – so, she said, it was time for employers to "reciprocate" in these difficult times.

As to how much the payout could be, Mdm Halimah said it was best left for unions and employers to negotiate.

But estimates from economists and unionists indicate a range of figures. Mr Kit proposed a modest 5 per cent of annual wages "to offset the erosion of purchasing power caused by inflation".

Mr Fang Chin Poh, general secretary of the National Transport Workers' Union, said they would likely negotiate for 10 per cent of monthly salary for those earning $2,300 and below.

Dr Chua thought a 1.5-month to 2.5-month payout, on top of the usual annual bonus, to be "a fair quantum given the steep rise in living costs and tight labour markets".

And as wage negotiations begin, Mr Alexander Melchers, SNEF council member and secretary of the Singapore-German Chamber of Commerce, advises companies: "Sit down, think about what you are going to do, about the impact of inflation on your lower wage workers. Determine the amount that you can afford and be forthcoming."
See related article: NWC wants feedback on wage guidelines
Analyse the challenges faced by firms and the government in deciding whether, and how much, to award to workers in the one-off "inflation bonus" suggested by the NWC.

Friday, May 16, 2008

Same brand of rice, very different prices (A real life example of price discrimination? Or the effects of inflation?)

TODAY Online (15 May 2008)

YOU could be paying up to 50 per cent more for the same bag of rice depending on where you buy it from, a survey by the Consumers Association of Singapore (Case) has found.

Checking on the regular price — before any discounts — of fragrant rice at supermarkets/hypermarts over May 6 and 7, the consumer watchdog found some huge price differences.

The biggest disparity was for a 10kg bag of Golden Phoenix Fragrant Rice, which cost $18.80 at Prime but $28 at Sheng Siong.

Among the 5kg packs, Golden Peony Fragrant Rice was $9 at Cold Storage but $12.80 at Prime, Mustafa and Carrefour.

In all, 10 brands of fragrant rice were examined across eight randomly-chosen retailers: Carrefour at Plaza Singapura, Cold Storage at Harbourfront Centre, Giant at Vivocity, Mustafa at Little India, NTUC FairPrice at Clementi Central, Prime at Hougang Ave 1, Sheng Siong at Ten Mile Junction and Shop 'N' Save at Toa Payoh Central.

"We were quite surprised by the big differences," said Case's executive director Seah Seng Choon. "But it is the commercial decision of the supermarkets. They have different cost structures, different target customers and ... different locations."

Sheng Siong's managing director Lim Hock Chee, whose Ten Mile Junction outlet had the highest prices for most of the brands surveyed, said perhaps other supermarkets were selling rice from older stock, which would have been cheaper.

"Our stock of rice is new, so we are using the latest prices," he said. "Our stock sells fast because we don't order a lot. We need to keep warehouse space for our house brands."

Its Royal Golden Grain Premium Fragrant Rice retails for $12.30 and its Nang Rum Thai Fragrant Rice for $9.30, for a 5kg bag.

Mr Lim also noted that while Case had listed Sheng Siong as selling a 5kg bag of Golden Phoenix Fragrant Rice at $15, the price was actually $13.20.

Prices at retailers may have changed since the survey was done. For instance, when Today visited Giant yesterday, the regular prices of a 5kg and 10kg bag of Golden Pineapple Fragrant Rice were $10.70 and $21.20, respectively. Case had listed the prices as $9.64 and 19.40.

House brands continue to be cheaper, the survey found. FairPrice Thai Fragrant Rice (5kg) was the cheapest at $6.60, while First Choice Fragrant Rice (5kg) at Shop 'N' Save and Cold Storage was the priciest, at $9.10.

NTUC FairPrice has touted its house brands as being at least 10-per-cent cheaper than comparable national brands. And last week, Today reported how the supermarket, to keep rice prices low, has been advising customers to buy no more than five 10kg bags of rice each.

While consumers were shocked at the huge price differences, those Today spoke to would not change their choice of supermarket.

Housewife Pooja Dutt, 31, gets her rice from Giant as it is convenient. She said: "It is too much a hassle to go elsewhere ... petrol and time still makes up for it at the end."

Customer service officer Audrey Koh, 28, said: "The fluctuating prices are so confusing that I don't really keep track anymore. I am surprised such basic staple like rice does not have a fixed price control system."

But the consumer watchdog will not go beyond surveying prices — Case will not interfere with a commercial decision, Mr Seah said. "We leave it to consumers to decide."

Case will continue to periodically conduct surveys on individual items.

Early this month, it released a survey of the prices of budget items at eight supermarkets.

Explain why prices for the same brand of rice may vary between different locations; and consider what effect this may have on consumers.

Updates: Case checks on rice price: right or wrong?

Thursday, May 15, 2008

Old gas pumps can't handle ever-rising prices (A real life case of menu costs due to inflation?)

The Associated Press
Chip Colville, owner of Colville's, Inc., checks the mechanical meters on a diesel fuel dispenser at his Chevron service station, Friday, April 25, 2008, in Reardan, Wash. The meters on the 30 plus-year-old dispensers stop at $3.999 per gallon. (AP Photo/Jeff T. Green)

REARDAN, Wash. (AP) — Mom-and-pop service stations are running into a problem as gasoline marches toward $4 a gallon: Thousands of old-fashioned pumps can't register more than $3.99 on their spinning mechanical dials.

The pumps, throwbacks to a bygone era on the American road, are difficult and expensive to upgrade, and replacing them is often out of the question for station owners who are still just scraping by.

Many of the same pumps can only count up to $99.99 for the total sale, preventing owners of some SUVs, vans, trucks and tractor-trailers to fill their tanks all the way.

As many as 8,500 of the nation's 170,000 service stations have old-style meters that need to be fixed — about 17,000 individual pumps, said Bob Renkes, executive vice president of the Petroleum Equipment Institute of Tulsa, Okla.

At Chip Colville's Chevron station in this eastern Washington town, where men in the family have pumped gas since 1919, three stubby, gray pumps were installed when gas was less than $1 a gallon. They top out at $3.999, only 30 cents above the price of regular gas at Colville's station.

"In small towns, where you don't have the volume, there's no way you can afford to pay for the replacements for these old pumps," Colville said. "It's just not economically feasible."

The problem is worse in extremely rural areas, where "this might be the only pump in town that people can access," said Mike Rud, director of the North Dakota Petroleum Marketers Association.

Demand for replacements has caused a months-long backlog for companies that make or rebuild the mechanical meters — and that's just for stations that can afford the upgrade.

For many station owners — who, because of relatively small profit margin on gas, aren't raking in money even though gas prices are marching higher — replacing the pumps altogether with electronic ones is just not an option.

"The new ones run between $10,000 and $15,000 apiece," Colville said. "It's an expense that's not worth it."

Mechanical meters can be retrofitted with higher numbers when pump prices climb another dollar. The last time that happened was in late 2005, when gas went over $3 a gallon, and owners of the older pumps installed kits that went to $3.999.

This time around, owners of the old pumps will need to install another kit that can handle prices up to $4.999, and possibly higher. Industry experts say those changes could cost as much as $650 per pump.

It costs less to change the meter to raise the maximum price from $2.99 to $3.99 a gallon, but that option raises the risk of a breakdown, said said Pete Turner, chief operating officer for APS Petroleum Equipment Inc. of Anniston, Ala.

"The computer that they're upgrading was not designed to go any more than what it's going now, and if you do it, they don't last long enough," Turner said. "They run so fast that the gears are wearing out."

The price of fixing the meters jumped in the past three years because old pumps are being phased out for new electronic pumps and demand for refurbished meters is down, Al Eichorn, vice president of PMP Corp., which makes the mechanical meters.

The Avon, Conn., company has hired extra employees who are working overtime but still has a 14-week backlog of orders, Eichorn said.

To deal with the problem, some state regulators are allowing half-pricing — displaying the price for a half-gallon of gas, then doubling the price shown on the meter.

In North Dakota, regulators recently told service stations their mechanical pumps could use half-pricing, provided they use signs to alert costumers and find a permanent solution by April 2009.

Tuesday, May 13, 2008

What You MUST KNOW for the Mid-Year Exams (if you don't already know them…)

Topic 1 (NIA)


- Definition of SOL: Qualitative & Quantitative Aspects

- Measurement of SOL: Qualitative - using Real GDP/GNP per capita (Explain how & why); Quantitative - using indicators such as literacy rate, life expectancy, pollution index, crime rate etc (Explain how & why)

- Limitations of using NY statistics (e.g. Real GDP/GNP per capita) to measure SOL: Measurement & Conceptual Problems - distinguish comparison 'over time' and 'over space' - explain using examples

Topic 2 (NID):

:Factors affecting components of AD/AE

- Consumption: Income, Wealth, Tax rates, Expectation of higher future income (optimism/pessimism), Expectation of higher future prices, Interest rate etc (Apply & Explain + Evaluate relative importance of factor)

- Investment: Interest rate & MEC (affected by business optimism/pessimism (i.e. Keyne's 'animal spirits'), political stability, infrastructure, quality of workforce, cost of production, tax rates & incentives, etc) (Apply & Explain + Evaluate relative importance of factor)

- Government Expenditure (Topic 8): Expansionary or Contractionary Fiscal Policy (To resolve macroeconomic problems, e.g. recession, cyclical unemployment, dd-pull inflation, BOP diseqm) or Supply-side FP (to develop infrastructure or subsidise R&D or labour upgrading & retraining etc)

- Net Exports (Topic 6: BOP): Competitiveness of Exports (affected by price of exports - in turn affected by Inflation rates, COP, ER,etc; and non-price factors (e.g. changing consumer tastes, better marketing/quality of goods); and Level of Imports (affected by protectionist measures such as tariffs, rising NY in domestic economy etc)


- Explain the multiplier process (see answer given for the policy essay presentations): How does a rise in AD/AE lead to a multiple change in NY?

- What affects the size of the multiplier (Tut 2 Essay 1)

:Circular flow of income

- How do injections and withdrawals affect the circular flow of income in a 4-sector economy?

- Use of the Circular Flow diagram (and Y=AE diagram) to explain how changes in AD/AE affect NY

Topic 6 (BOP)

:Components of BOP

- Current Account (BOT, Invisibles, Unilateral Transfers) & Capital Account (ST vs. LT K flows): See Tut 7 DRQ

:Causes of BOP deficit

- As above under Net Exports and consider other factors affecting Capital Account (both LT & ST K flows - e.g. FDI, interest rate differentials etc).

:Consequences of (Large & Persistent) BOP deficit

- As in your lecture notes (Explain & evaluate)

Topic 7

:Macroeconomic Objectives

- Benefits (link to consequences of Macroeconomic Problems)

- Conflicts between macroeconomic objectives (e.g. Consider what other macroeconomic problems can arise in the pursuit of a particular macroeconomic goal - See Tut 5 Essay 1, Tut 6 Essay 1b, Tut 7 Essay 1

Topic 8-10

(also Topic 3 to 5 - Causes of Macroecon


:Policies to solve macroeconomic problems (Topic 10 (II): Summary)

- Need to be familiar with the causes of the macroeconomic problems (i.e. demand pull inflation, cost-push inflation, cyclical unemployment, structural unemployment, slow & stagnant actual & potential growth, BOP deficit)

- Identify, explain & evaluate appropriate policies to solve specific macroeconomic problems - Consider effectiveness of policies in the context of various economies, e.g. Singapore.

Wednesday, May 07, 2008

China officials hike wages, threatening boost to inflation

May 7, 2008 (AFP)

BEIJING - SOUTH China's Guangdong province is the latest area in the nation to unveil plans to raise wages, state media said on Wednesday, a move economists worry runs counter to efforts to rein in inflation.

Guangdong provincial labour authorities said in a 2008 plan that they aimed to establish a regular salary increase system and raise wages of all employees in the region by 12 per cent or more this year, the China Youth Daily reported.

Other areas in China have announced similar polices, including the financial hub of Shanghai, where a salary rise guideline for this year has called on companies to lift employee wages by five to 16 per cent.

This is meant to help households, especially low-income families, cope with the country's surging inflation, which has fuelled government fears of potential social unrest.

China's consumer price index rose 8.0 per cent in the first quarter of the year. In February, it climbed to 8.7 per cent, the highest in nearly 12 years, before easing slightly to 8.3 per cent in March.

But analysts have voiced concern that salary hikes risk exacerbating the inflation problem that they are supposed to alleviate.

'Salary rises are certainly contributing to inflation,' said Mr Chen Xingdong, an economist with BNP Paribas in Beijing.

If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning of a vicious cycle.

'The problem will get worse if salaries and price rises take turns,' said Ma Qing, a Beijing-based analyst with the think tank CEB Monitor Group.

They argued that it could also add an extra burden on companies that are already under big pressure of soaring upstream raw material prices and might even put them out of business.

'If the requirement goes beyond what companies can afford and therefore forces them to cut jobs or stop production, then the losses may be bigger than the gains,' said Shen Minggao with Citigroup.

The Chinese government has signalled growing concern about the ways in which rising prices might adversely affect the poorest in society.

Since January, it has resorted to freezing price hikes on key consumer items like grain, edible oil, meat, milk and liquefied petroleum gas in order to keep them affordable for most families.

Wage rises may be meant to do the same, but economists warned they could actually lead to more social tensions by widening income disparities.

This is because wage rises by decree are likely to benefit mainly government employees, while blue-collar workers in private companies may get left behind.

'I doubt who will benefit from a policy where the government directs salary increases,' CEB Monitor Group's Ma said.

'In the final analysis, I think it will only raise government employees' wages. This is what happened in 2006 and 2007.' -- AFP

Read also: Chinese Cities - Trading Places (30 April 2008) and China's export economy is crumbling (2 May 2008)

US government begins tax rebates to stimulate economy

AFP (28 April 2008)

The US government began giving out tax rebates Monday in hopes the instant cash will spark consumer spending to revive an economy many analysts believe is in recession.

The Internal Revenue Service (IRS) said it had begun to transfer economic stimulus payments to "millions of Americans," some of whom would see payments in their bank accounts the same day. [read more]

How effective will this be? Read also:

Do smoke and drink tax rises work?

By Nigel Pankhurst
BBC News

UK Chancellor Alistair Darling announced big increases in the tax on alcohol in his first Budget as the government looks to tackle problems associated with a binge-drinking culture.

The increase in the tax on alcohol was the biggest since the 1970s. The increase, 6% above inflation, will put 4p on a pint of beer, 14p on a bottle of wine and 55p on spirits.

Do moves to increase tax on items such as alcohol and cigarettes have any effect, or will people carry on smoking and drinking regardless?

[Read more]

Monday, May 05, 2008

Interesting Articles related to Singapore - May 2008

  • As storm clouds loom... Slowdown could stretch to 2009; Singaporeans should be prepared, says PM Lee (by Loh Chee Kong)
Sources : Today - 2 and 3 May 2008

OPEC-style rice cartel proposed

Friday, 2 May 2008 19:52
The Prime Minister of Thailand has revived the idea of an OPEC-style Southeast Asia rice cartel.

However, analysts said the plan will not work due to the inability of governments to co-operate with each other and control output from their farmers.

The proposal by Samak Sundaravej the Thai PM, who also happens to be a TV chef, threatens to add to global food supply fears amid record high rice prices.

But it failed to gain traction seven years ago when it was first floated by Bangkok and most see little chance it will fare better this time around.

The five mainland Southeast Asian nations (Thailand, Laos, Myanmar, Cambodia and Vietnam) produce a combined 60 million tonnes of milled rice each year, about 14% of world output.

But only Thailand, the world's number one rice exporter, and Vietnam have major surpluses, last year accounting for about 47% of world wheat trade.

Mr Samak held talks with visiting Burmese Prime Minister Thein Sein and afterwards said they had agreed in principle to the idea.

Burma has resumed limited rice exports this year, mainly to South Asia, after several years off the market.

The proposed group, which includes two democracies, two Communist-led governments and a military dictatorship, appears in no hurry to hammer out the details.

Agriculture ministers will discuss the proposal in September at a meeting of the 10-nation ASEAN regional group in Vietnam.

Story from RTÉ News:

Another article from AP: Thailand floats idea of OPEC-style rice cartel

Questions (with the help of both articles)
  1. What are some of the factors determining the success of the rice cartel?
  2. Assess the short and long term impacts of the rice cartel on producers, consumers and society as a whole, in a rice exporting country as compared to a rice importing country.
and have a look at this very current local example of suspected price fixing...

The Competition Commission of Singapore("CCS") investigates possible price fixing again

- The CCS is currently investigating a suspected breach of the Competition Act (Cap. 50B) by four Singaporean suppliers of a traditional Chinese confectionery commonly used for prayers (发糕 - see pic) [read more]