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CNY essentials see a gentler price hike

Reduced costs from lower oil prices offset by higher wages, monetary policy easing, BT Fa Cai Index shows

Prepare to spend slightly more this festive season, as Chinese New Year food prices inch up again.


PREPARE to spend slightly more this festive season, as Chinese New Year food prices inch up again. The good news is, you will probably barely feel the difference, if the Business Times Fa Cai Index is anything to go by. (INFOGRAPHIC: Marginal increase in 2015 prices)

In its second year running, the BT Fa Cai Index is compiled by tracking the average price of an equally weighted basket of four popular festive items - mandarin oranges, beer, abalone and bak kwa - in the weeks before each Chinese New Year. The foods were chosen based on price availability and the ability to make year-on-year comparisons.

The basket is marginally more expensive this year, with prices inching up just 1.29 per cent year on year. This is in contrast to last year's 4.32 per cent increase, which was the steepest rise in three years.

This year's Fa Cai Index may reflect a "much more subdued festive mood", said CIMB economist Song Seng Wun. The slowing festive inflation comes amid expectations for Singapore's core and headline inflation to ease further. For CPI-All Items inflation or headline inflation, the Monetary Authority of Singapore's (MAS) 2015 forecast is -0.5 to 0.5 per cent, lower than last year's 1.0 per cent. In particular, food inflation is also more benign, which could be a reason for the marginal increase in prices of the festive goods, Mr Song said.

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OCBC economist Selena Ling shared a similar view, stating that OCBC's food inflation forecast for 2015 is 2 per cent year on year, down from 2.9 per cent last year and the lowest since 2010. Food inflation will remain mild unless a "severe supply disruption" such as from weather arises, Mr Song said.

In any case, if the slight price increases are still a cause for concern, some relief may be in sight - wages are forecast to outpace Chinese New Year inflation. Projections of wages for 2015, compiled by surveying companies, suggest that monthly income will grow more quickly than the price of the foods, year on year.

One caveat, though: The wage comparisons are based on averages, so affordability of the festive goods is likely to vary for most Singaporeans. Granted, our data-limited sample size is by no means comprehensive so the index could have a significant margin of error. Prices also fluctuate within the festive period. That being said, we hope it gives a useful glimpse at how the cost of the holiday changes with each passing year.

Leading the festive inflation this year were mandarin oranges, with prices rising close to 12 per cent from last year across the major supermarkets. A box of 18 mandarin oranges costs an average of S$7.88, up from S$7.06 last year. Fresh produce tends to see a spike in prices during the festive period, Mr Song said.

Sheng Siong supermarket told BT that its higher prices were due to a reduced supply of larger oranges from last year. At the same time, its festive foods in general also became more expensive due to higher costs in terms of labour, packaging and transport, it said. Its average selling price of mandarin oranges rose 10 to 20 per cent compared to last Chinese New Year.

On the supply side, weather was a major factor behind the spike in mandarin orange prices.

Joe Tan, general manager of Ban Choon Marketing which imports and distributes fresh produce, said there has been a shortage of oranges because of poor weather in the producing places such as China and Taiwan. As a result, this year's crop is smaller and the fruits are also of a smaller size, Mr Tan explained.

Besides, later Chinese New Year dates may have contributed to the higher orange prices this year. Thomas Pek, president of the Singapore Food Manufac-turers' Association, said the holiday falls in February, unlike in January last year, which means the oranges are stored for a longer time, resulting in higher storage costs. Labour costs are also up - a common gripe among the businesses. Retailers and suppliers of bak kwa and abalone have also had little to gain from the plunging oil prices. Bak kwa prices rose slightly by 75 cents from last year.

Koh Hock Bin, managing director of Cecilia Minced and Dried Pork Trading, said the fall in oil prices became significant only recently and did not affect the company's Chinese New Year prices. Ingredients for bak kwa are prepared months before the goods are produced and sold, Mr Koh said, and for the bak kwa it is selling now, the ingredients were bought when oil prices were still not low enough to have any impact on transport costs.

At the same time, higher costs plagued bak kwa sellers, mostly in terms of prices of raw materials. In particular, prices of pork and other meats surged, Mr Koh said. Imported raw materials were more expensive because of the weaker Singapore dollar after MAS eased Singapore's monetary policy, Mr Pek said.

As for Goh Joo Hin Pte Ltd which distributes the New Moon brand, chief executive Goh Kai Kui said operating costs have also been scarcely affected by the low oil prices.

For wild abalone, operating costs have increased, but Mr Goh tries to absorb them by reducing his "operational necessities". For example, the company encourages its customers to have more goods sent per delivery to cut the number of trips made. Abalone prices fell 3 per cent, a steeper drop than last year's one per cent decrease.

With festive food inflation relatively negligible, some companies are indulging in the festivities and mixing things up a little.

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