• Tue
  • Dec 23, 2014
  • Updated: 10:57am
BusinessEconomy
LABOUR

Work-cheap model hits Singapore inflation wall

PUBLISHED : Friday, 07 December, 2012, 12:00am
UPDATED : Friday, 07 December, 2012, 3:23am

When dozens of Chinese bus drivers held Singapore's first strike in 26 years last week, the island deported the perpetrators. Getting rid of the soaring prices that are emboldening calls for higher wages won't be as easy.

Rising housing, transport and business costs have given the city state the fastest inflation among the developed world's biggest economies.

The illegal protest by the SMRT Corp drivers late last month may herald a further escalation in price pressures, as even foreign labourers whose cheaper wages have helped restrain inflation express dissatisfaction with their incomes.

"All price go up, only salary no up," Delowar Hussin, a Bangladeshi labourer, said as he carried a bag of concrete debris away outside a Singapore office tower housing Morgan Stanley and Citigroup.

Hussin, 41, said he earns a basic wage of S$18 (HK$115) a day, a rate that has not changed in four years even as his monthly living costs jumped to as much as S$400 from less than S$300.

Singapore is grappling with the elevated inflation that comes with years of economic growth and population expansion, with rising demand fuelling record property and car prices.

The country tightened monetary policy this year while neighbours from Thailand to the Philippines cut interest rates, spurring gains in the currency even as the government predicts gross domestic product will rise at the slowest pace in three years.

"Singapore Inc is facing an adjustment period and there is no easy way out," said Kit Wei Zheng, an economist at Citigroup who has worked for the Monetary Authority of Singapore.

"The work-cheap model is reaching its limits especially since the cost of living is high. With inflation likely to stay above historical averages, macroeconomic policy will likely remain on a tightening bias."

Singapore has the highest inflation rate among 27 economies with GDP of at least US$100 billion and classified by the International Monetary Fund as advanced. Inflation has exceeded 4 per cent every month but one since November 2010, more than double the 1.9 per cent average in the past two decades.

Consumer prices are forecast by the central bank to gain more than 4.5 per cent this year.

"Persistent tightness" in the labour market will support slightly stronger wage increases in 2013, which will be passed to consumers, the central bank and Trade Ministry said last month.

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