Of late, we have been hearing about how Singapore is becoming more and more expensive each year.
ECA International, a global HR consultancy firm, published a survey
recently on the cost of living in various cities in the world.
Unsurprisingly, Singapore’s ranking went up by 2 positions in 2016, as
our island state ranked 16th.
Exhibit 1: Top 20 global rankings for most expensive cities in the world
Source: ECA International
This leads us to the next question of how expensive Singapore will be
if we continue on this trajectory in the future of becoming more
expensive.
But first, let us take a look at how Singapore has performed in the last few years after the Global Financial Crisis (GFC).
Inflation Has Came Down Pretty Significantly In The Last 2 Years
To start off, inflation as defined by Investopedia, is
the rate at which general level of prices for goods and services is
rising, and consequently, the purchasing power of currency is falling.
In short, it simply means our currency is losing its ability to buy
the same amount of goods as time goes by (e.g. chicken rice today cost
$3.50, compared to $2.50 10 years ago).
Inflation is generally highly correlated with the country’s gross
domestic product (GDP) growth. In the last two years, GDP growth for
Singapore has been at an all time low since the end of the GFC.
Inflation likewise has actually been negative (i.e. deflation).
Given the current situation, we expect Singapore to enter into a new
norm with low growth and relatively lower inflationary pressure in the
future.
Exhibit 2: Deflation in the last two years
Source: Singapore Department of Statistics, DollarsAndSense
Food: How Much Would My Chicken Rice Cost In 2050?
We recently went to a famous food centre located in the Central
Business District (CBD). A bowl of fish soup had just increased its
price from $4.50 to $5.00, a staggering 11.1% increase.
Being the curious team we always are, we asked the storeowner what
caused their price increment. We were told it was due to inflation. We
were surprise to hear that, as we thought inflation has been declining,
as seen in Exhibit 2. Why did the hawker raise his prices then?
Unlike overall inflation, food prices have never turned negative
before in Singapore. Being in a country with no natural resources, we
tend to be more vulnerable to prices set by others.
The average 10-year food inflation was 2.9%, slightly more than
all-inflation of 2.4%. Using the 10-year food inflation rate, we should
be expecting the $3.50 chicken rice today to cost about $9.16 in 2050,
2.6x the amount today.
| Price Of Chicken Rice Today | $3.50 |
| Expected Price Of Chicken Rice In 2050 | $9.16 |
Exhibit 3: Food price has never decline since 1990
Source: Singapore Department of Statistics, DollarsAndSense
Shelter: Things are not expected to be very bright here
Ever since 2009 to 2013, when cooling measures were introduced to
curb the surge in housing prices, the housing market has become dull and
unexciting. Price levels have been declining for multiple years. More
significantly, from 2015 to 2016, inflationary pressures for housing
have been in the negative zone.
Deflation for 2015 and 2016 was 3.5% and 4.1% respectively.
Nonetheless, this deflationary pressure will not last indefinitely as
the bulk of our wealth is still pegged to our homes. Therefore, we are
expecting housing price inflation to be along the 10-year average for
all-inflation at 2.4%.
What this means is that we can expect a house that cost $400,000 today to be about $902,000 by 2050, 2.3x the amount today.
| Cost Of Home Today | $400,000 |
| Expected Cost Of Home In 2050 | $902,000 |
Exhibit 4: Housing prices have been weak in the last few years
Source: Singapore Department of Statistics, DollarsAndSense
Education: A Long-Term Pain For All Of Us
Unlike housing prices, education inflationary pressures have less
correlation with Singapore’s economic growth. This comes with our
“Lifelong Learning” motto that we have adopted for Singapore. Inflation,
on average, remains stubbornly at about 3% since the mid-90s.
Using NUS’ undergraduate tuition fees for AY06/17, the average 4-year
fees would be at about $33,720 (excluding courses like dentistry,
medicine, law and music).
With 3.3% education inflation rate per annum, we are looking at fees of $102,000 from today, an increase of 3.0x from today.
| Cost Of Local University Education Today (4 Year Course) | $33,720 |
| Expected Cost Of Local University Education In 2050 (4 Year Course) | $102,000 |
Exhibit 5: Education inflation stubbornly remains high
Source: Singapore Department of Statistics, DollarsAndSense
The simple conclusion here is that the amount of money that we will
need for basic cost areas such as food, shelter and education would
become a lot higher in the future. Hence, we need to save and invest
today so that we can prepare ourselves financially for the future.
The rhetoric of earning a keep and just saving up does work well for
the baby boomers because they live in an era where wages actually do
keep up with inflation. However, we are living in a new world today
where wages remains relatively flat while costs continue rising
mercilessly.
Ref:http://dollarsandsense.sg/how-much-would-it-cost-to-live-in-singapore-in-2050/
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