Remember my last post about inflation? I was quite specific about what caused it. As I recall, I typed Absurd Optimism in larger than average font, and wrote “Inflation seems to be getting worse because of our laid back attitude“. Cue an official statement by DPM Tharman Shanmugaratnam, which explains that, chillax, the “average Singaporean” won’t feel it. As I’ve now had my point politely proven for me, I’ll move on to the next issue: Inflation DOES affect you, and here’s why:
Core Inflation vs. Consumer Price Index
Okay, so we know the consumer price index (CPI) is 5.2%, going on 6%. But what’s this talk of “necessities” only being just 3%?
That 3% is the measure of core inflation. Supposedly, core inflation is a more accurate measure of how inflation affects you. Because rather than include the cost of optional purchases, core inflation focuses on price changes in necessities: The things you must buy to survive.
A “house” is apparently not one of those things.
That’s right, our method of calculating core inflation excludes housing and private transport. If you eliminate the two biggest factors of inflation, the numbers look real soothing. In fact, I’ll go one better than soothing: According to core inflation, not only do things remain affordable, but inflation has actually decreased.
Here’s a quote from Channel NewsAsia:
“The MAS’ measure of core inflation, which excludes accommodation and private road transport, eased to 2.9 per cent in March compared to a year earlier, from 3.0 per cent in February.”
So assuming you don’t buy a car and really love camping, you should be fine. For the rest of us, these are the effects:
1. Your Savings Are Being Devalued
As an average Singaporean, I have a savings account. A regular savings account with less-than-stunning 0.125% interest. It’s that low because, not having a Sentosa Cove Bungalow and a million dollar pay cheque, I’m a pimple on the backside of our banking industry.
Maybe you’re a bit better (or worse) off. But either way, most “average Singaporeans” have interest rates that will never cope with this inflation. Every day our money sits in the bank, it becomes more worthless. We’re losing money faster than a Blackjack player who can’t count to 21, and the thought of retirement is a sad, bitter joke.
Don’t have high hopes for your CPF either. At a rate of 2.5%, it fares better than your bank account. But even that’s insufficient to cope with inflation; and you’ll be using a huge chunk of it when you BUY HOUSING. You know, that thing that’s NOT factored into inflation.
2. Your Wages Decrease
Your income is going to face more problems than an ah beng caught with a pig’s head and spray can at midnight.
As property prices go up, home owners and landlords are faced with higher repayments. The solution is to raise their rent. This has an adverse effect on companies, particularly if they have expatriate workers to shelter.
Also, the commercial properties are beginning to suffer a spillover from the overheated residential properties; office rent is also climbing.
Employers who need inventory space (retailers) or operating space (restaurants) are starting to feel the squeeze. As rental and property prices eat into their profit margins, they will be pressured into raising their own prices. And because their overheads swallow the extra cash from price hikes, there’s no budget for your raise.
There are two results:
- Everything is more expensive, but your wages don’t grow
- Inflation is affecting you, even if you don’t buy a house
3. You Can’t Fully Avoid The Cost Of Private Transport
Cars aren’t always luxuries. If you have a sick mother to take care of, or children to send to school, they become necessities.
Again, this is where MAS’ beloved core inflation fails. The price of cars (private transport) is excluded, so core inflation doesn’t accurately reflect your situation. I won’t go into detail on COE prices, because I already covered it in the last article. But it’s worth noting that, even if you can surrender the car, you won’t dodge inflation.
Companies need to buy cars as well. Courier companies, which transport equipment between retailers, need to pay for licenses too. And what about the food vans that deliver to hawker centres or supermarkets? They’re about as free as Mas Selamat.
Someone needs to pay for their rising petrol and COE costs. And that’s YOU. In the end, retailers and F&B outlets increase the amount they charge you, in order to pay their suppliers. It doesn’t matter whether you bought private transport or not; you’re paying for it.
4. You Can’t Afford a Home
And now we come to the most important point. Unless you intend your entire family to live like squirrels, you pretty much need a house. If you’re rich, hey, no issue. But if you’re a young couple…don’t take offence, but I’m glad I’m not you.
When you buy a first house, that’s going to be a loan you’ll be paying for…how long? 15 years? 30 years? And with the out of control cash over valuation (COV) and rising per square foot costs, I’ll tell you what you’ll pay: Too much. If you buy a house in this overheated market, you risk prolonged, crippling debt. And while you’re struggling to pay it, prices all around you are rising.
Welcome to life on Nightmare mode.
And even if you already own a house, don’t assume you’re completely safe. Remember what I said about inflation outstripping your savings and CPF? Well what happens if your retirement fund burns out, and you need to downgrade?
I hope you’re okay with buying a smaller flat that’s $100,000 more than your previous one. Even if your former home’s value appreciated, the profit is going to be devoured by the monstrous cost of your new place.
What Can You Do?
In the next article, I’ll explore what means you can use to fight inflation. Ninjas and death robots may be involved, along with constructive suggestions like visiting SmartLoans.sg. There’s hope yet!
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