Deflation Hits Singapore!! – Cheaper Household Staples, Utilities, Maids

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Jun 25 2015
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When Singapore was crowned as the world’s most expensive city for a second year roughly three months ago, there weren’t much fireworks in the sky, at least not to the average Singaporeans. After all, with great title, comes great financial insecurity. Hence it wasn’t hard to understand why the people were feeling the pressure instead.

Singapore - Top 10 Most Expensive Cities in the World

According to a Manulife study which interviewed 500 people above the age of 25 living in Singapore, only 38% were satisfied with their financial situation. If that was not bad enough, the same respondents also believed that the generation following theirs will be worse off financially.


From 2004 to 2014, wages in Singapore have risen a cumulative 29.2%. Still, a whopping 75% of people surveyed by recruitment agency Hudson Singapore answered higher salaries as their top priority for the coming years. Prices of grocery, utility and transport were higher than those living in New York.

Singapore Consumer Price Index May 2015 - Department of Statistics Singapore

Now, good news is in store for Singaporeans. Based on latest data released by the Singapore Department of Statistics, something fabulous has happened. Surprisingly, the consumer price index (CPI) for May-2015 dropped a larger-than-expected 0.4% on year. It was up 0.5% the previous month on Apr-2015.


The biggest drop was “Housing & Utilities” where a 3.8% decrease was recorded. But this was on the back of 26.3% weightage, out of 100%. The jewel of the drop was “Household Durables & Services” – a drop of 2% out of its 4.7% weightage. In layman term, household services are now close to “half cheaper” than before.

Singapore CPI Negative May 2015 - Singapore Maid

What on earth causes this? The answer – a steep cut of the foreign domestic worker (maid) levy, thanks to the government’s initiative announced in its budget earlier this year. Prior, employers of foreign maids pay S$265 a month in levies, or S$120 if they qualify for a “concessionary rate”. Effective May 1, the Singapore government halved it to S$60.


In the process, not only it benefited 145,000 households, but drove the country into “deflation instead of inflation”. But why a paltry saving of S$60 every month such a big deal? That’s because Singapore has a force of 220,000 maids. And the annual savings from the reduced maid levy for a household amount to S$720 a year (US$536; £342; RM2,014).

Inflation-Deflation Signboard

The effort by the Singapore Finance Ministry also saw the extension of the goodies to families with children aged below 16 years, up from below 12 years old initially. Other item from the annual budget includes the elimination of examination fees at government-funded and poly-technical schools, which could save families about S$900 (US$670; RM2,520) a year.


However, the statistics show an increase in transportation costs – up 0.9% compares to previous year. This can easily be solved by increasing the number of permits to own a vehicle, also known as the notorious COEs (Certificate of Entitlements), to which the Government of Singapore plans to increase by a staggering 42% in the second quarter.

Singapore Dollar Currency Money Changer

The huge chunk of CPI is still food (21.7%), up to 1.8%. But the government is not worry at all. While the Singapore dollar has lost value against the U.S. dollar, it has gained more against the Malaysian ringgit. Since the beginning of the year, the Singapore dollar has fallen around 2% against the U.S. dollar, but has gained about 6% against the ringgit.


Obviously, the strengthening of Singapore dollar means the import from its neighbour Malaysia is cheaper. So, Singaporeans should be happy that fruits, vegetables, eggs, meat and other produce will cost lesser. Malaysian Najib administration, on the other hand should be equally happy with the weakening ringgit because they can export more (*sarcasm*).

Singapore CPI Negative May 2015 - Fruits Import from Malaysia

There’s one bad news though. If the Government of Singapore continues to care for their people by making things cheaper, there will not be any inflation but only deflation. This also means Singapore would probably lose its crown as the most expensive city on planet Earth. Heck, probably Singaporeans wouldn’t care at all, would they (*grin*)?


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