It’s a score that may put a frown on some people’s faces. Singapore has clinched the top spot – together with New York – as the world’s most expensive cities to live in.
Not a newcomer too, as this is the eighth time in 10 years that the Republic has topped the Economist Intelligence Unit’s (EIU) Worldwide Cost of Living index.
The bi-annual EIU survey compared more than 400 individual prices across more than 200 products and services in 172 cities. These included prices for food, clothing, household supplies and transport.
Last year, the city that clinched the top spot was Israel’s Tel Aviv, with Singapore sharing the second position with France’s capital, Paris.
According to the survey, Singapore has faced a consistently high cost of living. We explore four reasons why the city-state is regarded as the most expensive city in the world.
#1 High Inflation
EIU pointed to high inflation as a major contributor to higher costs, which has led to the cost of living soaring in the world’s major cities, including Singapore.
According to the survey, the average price of goods in local currency terms surged by 8.1% this year in the world’s biggest cities. To compare, the rise in prices was 3.5% in 2021.
This is the fastest rate for at least 20 years. Petrol prices have seen the most rapid increases, but utility and food prices have also increased sharply, according to EIU.
In Singapore, overall or headline inflation is expected to average around 6% for this year, the Monetary Authority of Singapore and Ministry of Trade and Industry noted in their latest update on consumer prices. Food and accommodation are contributors to the increase.
#2 Strong Singapore Dollar
However, high inflation is not the only factor that drives the ranking of the world’s most expensive cities.
A stronger currency will tend to cause a city to rise in the rankings as prices are higher when expressed in international common currency. EIU converts local currency prices into US dollars to calculate each city’s index. The rankings are also driven by exchange rates against the greenback.
Therefore due to Singapore’s strong currency, it has a tendency of ranking highly on EIU’s index.
This year has seen the dollar strengthen against many currencies as the Federal Reserve hikes interest rates. The Singapore dollar has shown resilience to the hikes, thanks to its high foreign currency reserves and a strong current account surplus.
#3 Trade Disrupted By War In Ukraine, Covid-19 Restrictions
Inflation for food and household goods has been high amid trade restrictions, caused partly by the war in Ukraine. The EIU noted that petrol prices have seen the most rapid increases.
The price of a litre of petrol has risen by 22% year-on-year on average in local-currency terms, amid higher global oil prices and a stronger US dollar.
Singapore, being an open economy, is not spared from global trade headwinds. Fuel pump prices, for example, breached S$4.00 for the first time in June this year, due to talks of a ban on Russian oil and increased post-pandemic demand from economies.
The high prices of energy commodities caused utility bills for electricity and gas to be up by an average of 11% in local-currency terms across the 172 cities in the survey.
#4 Expensive Discretionary Goods
According to EIU, Singapore has the world’s highest transport prices, due to strict government controls on the amount of cars. It is also among the most expensive cities for clothing, alcohol and tobacco.
A person living in Singapore who wants to have a lifestyle slightly above average, is bound to spend on such items.
In fact, a study by DBS found that discretionary spending in Singapore had risen over the past year. More people splurged on food and alcohol, entertainment, and travel, potentially driving prices higher due to increased demand.
Cost Of Living “Crisis” To Go Away In 2023
In an article on the EIU index last year, when Singapore was ranked as the second most expensive city, the country’s trade ministry then had commented that the index may not reflect the actual cost of living of Singaporean households.
It stated that the consumption basket tracked by EIU is not based on typical Singaporean households. The index includes items like international foreign daily newspapers, which is not a common product consumed by Singaporeans. The government noted that it has also been helping provide some relief to people’s living concerns with support measures to ease living costs.
Singaporeans can expect prices to start easing over the coming year, as supply bottle-necks start to ease and slowing economies weigh on consumer demand. The backlog caused by supply chain disruption should start to ease too as freight rates come down and demand softens.
Overall, EIU forecasts that global consumer price inflation will fall from an average of 9.4% this year to 6.5% in 2023.
Unless the war in Ukraine escalates, EIU predicts that commodity prices for energy, food and for supplies such as metals are likely to fall sharply in 2023 compared with 2022 levels, albeit higher than previous levels.
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