Mon, Dec 10, 2012 - Page 9 News List

Singapore’s battle with inflation

As its neighbors play salary “catch-up” the city-state could face further worker unrest as wages fail to keep pace with inflation

By Shamim Adam  /  Bloomberg

Singapore Health Services Pte, the country’s largest healthcare group with more than 16,000 employees, is reviewing its business contingency plans in the aftermath of the drivers’ strike, said Goh Leong Huat, deputy group director of human resources for the government-linked operator of hospitals and polyclinics.

The government said in March it will spend about S$200 million to increase salaries of healthcare workers. About 20 percent of public healthcare employees were foreigners at the end of last year, according to the Health Ministry.

CHINA SALARIES

Average urban salaries in China increased 12 percent in the first nine months from a year earlier without adjusting for inflation, after climbing 14.4 percent for all of last year and 13.3 percent in 2010, government data show. In Indonesia, the government said it may raise the lowest required wages to 2 million rupiah (US$208) a month, while Malaysia this year joined Thailand and Vietnam in implementing a minimum income. Singapore does not have such a rate.

“Wages in neighboring countries are playing huge catch-up and in China in particular, wages have been outstripping GDP growth,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank. “People will start assessing whether the trade-offs to come to a foreign land, working long hours and being away from the family are worth it.”

JOB CREATION

Median monthly incomes in Singapore rose 7.1 percent this year without adjusting for inflation, after climbing 8.3 percent last year, according to a preliminary report on the island’s workforce by the Manpower Ministry last month.

Singapore’s jobless rate fell to 1.9 percent last quarter, while Australia also reported on Thursday its unemployment rate unexpectedly dropped last month. New Zealand’s central bank kept interest rates unchanged, while South Korea’s economy grew less than initially estimated in the third quarter.

CURRENCY GAINS

Singapore, which uses the exchange rate to manage inflation, unexpectedly refrained from slowing the pace of its currency’s appreciation in its October policy review even after the economy contracted last quarter. The Singapore dollar’s 6.3 percent gain this year has done little to damp inflation stemming from domestic price pressures.

Home prices climbed to a record high in the third quarter, and the cost of a permit for a small car rose to an unprecedented S$78,523 on Wednesday, from S$46,889 at the start of the year. The country auctions limited vehicle permits to control congestion and pollution.

Adding to price pressures is a government drive to cool the inflow of foreign workers, after voter anger against competition for jobs, education and housing boosted support for the political opposition in elections last year. Opposition parties have said that the large numbers of overseas workers have depressed local wages.

Higher car and property prices, and the measures to tighten rules on hiring overseas workers, are driving up the “overall cost structure” of the economy, spurring inflationary pressures that are a result of “self-imposed” policies, Seah said.

LOSING EDGE

“Singapore used to have the upper hand on inflation, but somehow has been losing its edge in this aspect in recent years,” said Seah, who formerly worked for Singapore’s Trade Ministry. “Inflation will remain significantly higher than normal for as long as those policy measures remain in place. The policies are growth-limiting and pushing Singapore closer and closer toward the brink of recession.”

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