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Rich bear the brunt

Inflation hits top income earners in unusual turnabout
Neo Chai Chin (TODAY)
March 25, 2008

FOR the first time in at least eight years, the wealthy in Singapore have borne the brunt of inflation, while lower-income earners have — in a reversal of roles — seen expenses rise at a slower rate than the national average.

In the last six months of 2007, inflation was 3.9 per cent for the top 20 per cent of income earners. The bottom 20 per cent saw a 2.8-per-cent hike in their consumer price index (CPI), while middle-income earners fell in between, with 3.3 per cent.

For the whole of last year, the top income-earners experienced 2.3-per-cent inflation, compared to 2 per cent for the rest.

It's an unusual turnabout. The Department of Statistics records dating from 2000 show inflation hurting the bottom 20 per cent of the population most. And one key reason high earners were harder hit last year: Spiralling fuel prices, which started reaching record highs in October.

This, said economists, fed into more expensive holiday travel, cars and petrol. Together with housing — where private property rentals helped push up the CPI — transport and recreation costs make up almost two-thirds of the top 20-per-cent earners' CPI.

Forecast's economist Vishnu Varathan said the affluent are more likely to hail cabs and to drive, and July's taxi fare hikes and higher pump prices would have affected this demographic more. "The impact of bus and MRT fare increases would be less acute for the lower-income as there have been small increases over time," he said.

Transport inflation for the bottom earners was 2.9 per cent for the second half, compared to 5 per cent for top earners.

As for recreation, said Standard Chartered economist Alvin Liew, the wealthy are more likely to go on holidays, and a "key component of air travel is fuel costs".

And with the high-end property market fetching record prices last year, consumers would have to pay higher rents for more swanky accommodation, said Mr Varathan.

But does all this mean that higher earners necessarily had it harder than the middle- or lower-income? Not so. As Citigroup economist Chua Hak Bin pointed out: "What is important to note is that the higher-income group saw the highest nominal wage increases and are better able to withstand higher price increases."

Looking ahead, a slower global economy this year could ease prices of luxury items, which form a more significant part of higher earners' CPI, said Mr Liew.

Overall, however, it is uncertain if inflation will continue to be higher for the rich. Economists point to the twin trends of rising food prices and fuel costs, which affect all tiers of society.

Mr Varathan felt food prices — which went up by 4.1 per cent in the second half, up from just 1.7 per cent in the first half of 2007 — were likely to remain high because of global trends such as urbanisation, the growing of biofuels and increased consumption of meat. These impact the supply of food — cultivation of biofuels means less farmland available, for instance.

Can rising inflation be halted? February's CPI rose 6.5 per cent over the same period last year, with transport and communication, food, education and healthcare costs leading the surge. Part of it could be attributed to the Chinese New Year period, when food and overseas travel are at a premium.

Still, a reprieve could be in sight - the slowdown of the global economy and excess manufacturing capacity could lead to lower prices in the second half of the year, said economists. And come July, the effects of last year's GST hike will no longer reflect in year-on-year CPI comparisons.



Middle-income earners were the hardest hit – healthcare costs rose 4.3 per cent for them, higher than the overall 4.1 per cent. Economists did not know exactly why this might be, saying more research had to be done. For example, are the subsidies for the poor benefiting the middle classes? Did hospital charges rise proportionately across all income classes? What types of medication did the middle classes consume?

Food prices

While the hike was about equal for all income groups, averaging 2.9 per cent, the poor felt the impact most as this component accounts for almost 30 per cent of their expenditure.


Thanks partly to the moderating influence of service and conservancy charge rebates, bottom and middle-income groups saw inflation of 0.1 per cent, compared to 1.2 per cent for top earners.

Inflation hits top income earners in unusual turnabout

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