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Wednesday, October 8, 2008

Inflation: Excessive Rising Cost of Food Amidst Lower Commodity Prices

Excessive rising prices are putting a heavy financial strain on the middle and lower class citizens. Transport prices rise, gasoline prices rise, newspaper charges rise (Noticed recently the price increase in your newspapers?), More and more Electronic Road Pricing (ERP) gantries are sprouting everywhere and traffic jams are becoming worse correspondingly and it seems people are paying more to get more jams. Even our neighbours from Malaysia who visits Singapore finds prices in Singapore exhorbitantly high (Check out a blog from our Malaysian counterpart who visited Singapore yesterday : ).

However, it is the constant increase in FOOD PRICES that places the greatest strain on the man on the street.

The previous rally in commodities have have ended or at least, corrected and in view of the financial turmoil facing the world right now, world demand for oil is expected to drift much lower, led by America, which accounts for a quarter of the world’s oil consumption (Source:

Price of commodities have dropped, including rice. As at June 2008, The Straits Times article ‘Price of rice likely to fall in next few months’ quoted that the price of fragrant rice could tumble to US$1,000 (S$1,370) a tonne by year-end, importers forecast.

As at 2nd October 2008, the quote for commercial rice from Thailand is about USD$625 - $690 per metric tonne (which is approximately SGD$940 per tonne). That is a hefty drop in the price of rice. The prices of other food commodities are also falling in tandem, but prices of hawker food still remains high. A bowl of rice used to cost 20cents before the commodities rally, and every hawker took the opportunity during the commodity price rally to increase it to 50cents to a dollar per bowl. Now that commodity prices have fallen, why is it that their food prices still remain high?

An interesting highlight of how much food prices have escalated: With reference to Mr Brown’s article on rising prices: He has commented his roti prata has increased price by 10cents, and that was dated 3 July 2006. During 2006, the cost of a prata kosong was 50cents, fast forward 2 years now it costs from $1.00 to $1.30! and all these within 2 years! The cost of retail food has been increasing at a much higher rate than the price of commodities. So, somewhere along the food chain, the savings from the drop in commodity prices is not being passed down to the ultimate consumers. Someone along the food chain must have been making a tidy profit at the expense of the man on the street.

One would think it is the hawkers that are profiting from this because commodity prices have been dropping but he is still selling at the same high price. Others would think it is the landlord who is profiting from this, because the landlord raises the rent, which in turn forces the hawker to raise the price. Then another group of analysts says that the landlords are forced to increase the rent because they bought the property at high prices (We will talk about property prices and its effect on the ordinary man on the street on a later post). So, ultimately, the source of this rising food prices starts from property prices, which then results in higher rentals, which in turn results in higher food prices and the final consumer suffers the consequences. Of course, along the complicated chain, every party adds on a premium as profit and the cost snowballs to the final consumer by way of a $1.30 kosong roti prata or a 50cents small bowl of rice or 50 cents more for a few strands of extra noodles. Life is becoming more and more difficult for the middle and lower class Singaporean.

What we can do is to highlight the various eateries that charge reasonably cheap food and also those that charge high and yet cut down on the ingredients for the benefit of everyone.

We welcome suggestions and comments of eateries and we will post them for the benefit of all.
Your humble servant.


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