(Aug 7): Toh Ah Poh is well known among finance professionals who work in the Raffles Place area. For some 32 years, he served them coffee and other beverages from a corner stall at the Market Street Hawker Centre.
Last month, as a CapitaLand-led consortium began preparing to build a $1.82 billion integrated development on the site, Toh and other Market Street hawkers moved to a new location a five-minute walk away, at the corner of Cross Street and Cecil Street, where they will operate for the next four years.
With the move, Toh figured the time had come to hike the price for a cup of coffee by 10 cents, to 90 cents. Toh and his fellow hawkers are not being charged a higher rent at their new temporary location, but some of his operating costs have increased recently.
In July, it was announced that the total water tariff for non-domestic users such as Toh would be $2.39 per cubic meter, up more than 11.1%. Next July, the rate will rise another 14.6% to $2.74.
“My prices are already among the lowest around. It has been three years since I last raised prices,” Toh tells The Edge Singapore.
Francis Tan, an economist at United Overseas Bank, who has been a regular customer of Toh’s, says the higher price and longer walk will not deter him from getting his regular coffee fix.
“The absolute increase is not as big, and his offering’s still the cheapest,” says Tan. Moreover, with the recent administrative adjustment to the price of water, so-called “second order” price increases are only to be expected in the months ahead, he adds.
Hawker food has a relatively high weighting of 8.1% in the Consumer Price Index (CPI). So, small absolute price adjustments made by hawkers such as Toh that many consumers who work in the CBD might shrug off could have an effect on inflation data later this year. In fact, administrative adjustments have been made to a host of other items besides water in recent months.
For instance, last December, HDB residents began paying higher parking charges. Season parking for multi-storey car parks now costs $110 instead of $90 previously. The cost for parking at open lots was raised from $65 to $80.
More recently, town council service and conservancy charges have increased too. Since June, the 15 town councils run by the ruling People’s Action Party have raised monthly service and conservancy charges by 50 cents and $9 respectively — bigger flats pay more. Next June, another round of increase, ranging from 50 cents to $8, will kick in. Prior to this increase, each household paid between $19.50 and $88 a month. The last round of hikes took place over 2014 and 2015.
Inflation contained in June
So far, headline CPI inflation has been contained.
For June, CPI-All Items posted a 0.5% y-o-y increase. This was a slower rise than the 1.4% gain in May. On a m-o-m basis, CPI-All Items actually fell 0.1% in June, versus a 0.3% rise in May.
Among the sub-categories of the index, the biggest gains were seen in “other travel and transport” and “holiday expenses”, which were up 2.4% and 1.7% m-o-m respectively. These two categories have weightings of 1.3% and 3.5% respectively in CPI-All Items. Hawker food (which includes food courts) saw a 0.2% m-o-m rise.
Among the components of CPI-All Items that saw the biggest declines in June were clothing and footwear, which declined 1.8% m-o-m; sugar, preserves and confectionery, which declined 1.1%; and communication, which declined 1.1% too. These three categories have weightings of 2.7%, 0.3% and 3.9% respectively.
The decline in the price of communication comes as the three local telecommunications companies have struggled with stiffer competition and declining profitability.
Singapore Telecommunications, the largest of the three players, saw its average revenue per user decline $3 y-o-y in 4QFY2016 to $67 for its postpaid subscriber base.
StarHub experienced a $1 y-o-y dip to $70 for 2QFY2017 ended June 30.
For the same period, M1 saw a much steeper 6.8% y-o-y drop to $55.80 from $59.90.
Exchange rate, oil are factors
Looking ahead, economists are warning that inflation could accelerate in 2H2017 on the impact of administrative price adjustments as well as firmer global commodity prices.
For 2017, the government expects CPI-All Items inflation to rise between 0.5% and 1.5%, versus a decline of 0.5% last year. The MAS Core Inflation, which excludes accommodation and private transportation costs, is expected to average 1% to 2% this year, up from 0.9% in 2016.
In a statement on July 24, the Monetary Authority of Singapore and Ministry of Trade and Industry say: “Global oil prices have risen from their trough in the previous year, and are likely to average higher in 2017, although upward pressures would be capped by elevated inventories alongside rising US crude oil production.”
According to Nomura, Singapore is among the four Asian countries most susceptible to big changes in currency exchange rates and oil prices. The other three are India, Indonesia and the Philippines. “They are the two big wild cards in forecasting Asian inflation,” the Japanese bank states in a July 25 report.
Over the past month, West Texas Intermediate crude, one of the two international benchmarks for the oil prices, has climbed to more than US$50 per barrel from a low of US$43 per barrel in late June. Analysts have attributed the gain to a larger-than-expected inventory drawdown in the US. Threats of US sanctions against Venezuela, a member of the Organization of the Petroleum Exporting Countries, and signs that growth in US shale drilling is losing momentum have also had an impact.
Will oil keep rising? What will it mean for local inflation? In an Aug 1 note, UOB market strategists Heng Koon How and Quek Ser Leang write: “Market participants are once again excited that WTI has now joined Brent crude oil on the stronger side of the key US$50 per barrel psychological price level.” But they add that it is “premature” to say whether WTI will stay above US$50 per barrel for long.
While US inventories are down, they are still above their long-term historical levels, the UOB analysts say, adding that the market remains sceptical of whether the production quotas introduced by Opec will be enforced. “For now, WTI remains within the broad trading range of $40 to $55 that we had witnessed over the past year.”
Tan, the economist at UOB who regularly visits Toh’s hawker stall, figures that inflation is unlikely to accelerate very much, even taking into account any likely rise in the price of oil and other commodities. Moreover, Singapore is not suffering from surging labour and rental costs the way it was a decade ago, he says. “On the whole, it is actually a good time to hike the water tariffs.”
It also seems to have been a good time for Toh to raise his prices. On the morning of Aug 1, the day the interim Market Street Hawker Centre opened, his was one of only a handful of stalls that were ready for business, and none of his regular customers seemed to flinch when asked to pay a bit more for their coffee.
