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Most expensive CNY yet, but milder price hikes offer some cushion
THIS Year of the Dog is a case of the bark being worse than the bite. Even as prices of most Chinese New Year essentials rose to record highs, they are rising at a significantly slower pace, The Business Times Fa Cai Index has found.
The fifth edition of the annual index tracked the average price of an equally-weighted basket of four popular festive items - mandarin oranges, beer, abalone and bak kwa - in the weeks before the festival.
Overall, the basket of goods costs 2.4 per cent more than the previous year, but this slight increase was enough to make 2018 the most expensive year - eclipsing the record held by 2015.
However, the 2.4 per cent increase is a moderated one, less steep than the 8.6 per cent jump recorded last year.
This seems to be in line with the 1.5 per cent year-on-year increase of core inflation in 2017. Core inflation does not factor in transport and accommodation costs, but includes food costs.
The combined price of the four food items have also more than recovered from the drop between 2015 and 2016, which was attributed to an abundant supply of abalone and mandarin oranges.
In dollar terms, the same basket of goods cost S$138.65 in 2016, rose to S$150.51 last year and stands at S$154.18 this year.
CIMB Private Bank economist Song Seng Wun said: "Food prices are generally stable, but businesses try to price as much as they can get away with, in line with average wage growth."
He pointed out that the economic landscape has turned out better than expected last year, and it encouraged strong festive demand.
Like Mr Song, OCBC economist Selena Ling said the backdrop of a surprisingly higher GDP growth last year and a dip in unemployment in Q4 have resulted in fairly strong consumer sentiment.
"People are a bit more willing to spend on consumption items in light of the festive season."
Her view, therefore, is that the upswing in prices is more demand driven than supply-led.
However, many businesses seem to disagree. They say the various price increases are caused by supply factors, such as bad weather and higher operating costs.
As the BT Fa Cai Index sample is small and by no means comprehensive, and because prices fluctuate within the festive period, the index may have a significant margin of error.
However, we hope it gives a useful glimpse into how the cost of the holiday changes with each passing year.
Mandarin oranges and bak kwa posted their highest average prices since BT began tracking them in 2010.
After having been the main driving factor in the 2017 index, bak kwa prices climbed by 3.4 per cent this year to an average of S$56.50. A week before Chinese New Year, one kg of traditional bak kwa hit the S$60 benchmark at Lim Chee Guan.
The traditional bak kwa maker said that, although it has tried to maintain existing prices, escalating rentals and the rise in cost of raw materials and manpower (required round the clock) have forced it to raise the price of its popular barbequed pork slices.
Koh Hock Bin, managing director of bak kwa manufacturer Cecilia Minced and Dried Pork Food Trading also said that raw material and packaging costs have driven this year's bak kwa prices up.
CIMB's Mr Song said bak kwa prices are more price inelastic than any other festive goods, meaning that consumers are willing to stand in line for it and pay the higher prices. This comes from the strong branding efforts by bak kwa sellers. Additionally, queuing up to buy bak kwa has come to count as a ritual tied to the Chinese New Year season in Singapore.
Meanwhile, the price of a box of 18 mandarin oranges edged up to S$7.97, or 1.5 per cent higher than last year.
Retailers and wholesalers blame the weather for the higher prices of mandarin oranges. A Sheng Siong spokesman said: "Due to a drought in China during the fruiting period of these oranges, the overall harvest was smaller than in previous years, and bigger fruits are scarce."
Wholesaler Shellfruits' operation director Lesley Sea said the typhoons that hit China's Fujian province and Taiwan, along with a colder winter, have affected the quality and quantity of oranges produced this year.
Abalone prices registered the steepest rise compared to the other festive items - 4.4 per cent to an average of S$41.44, but it is still below 2015 levels.
Goh Kai Kui, chief executive of Goh Joo Hin, the company managing and distributing the New Moon brand, said prices have gone up following a 15 per cent cut in wild abalone fishing this season. The reduction is in turn the result of various governing bodies' quotas to regulate wild abalone fishing in the interest of keeping the supply sustainable.
The spokesmen for supermarket chains NTUC FairPrice, Giant and Cold Storage have all confirmed that the rise in abalone prices is due to a shortage in supply.
This year's beer prices exclude those from Giant and Sheng Siong, because these retailers do not carry Tiger beer cans in cartons of 24, which The Business Times used as a gauge for this price index.
But the average price obtained from the remaining retailers stayed essentially flat, at S$48.28; this was just two cents shy of last year's price.
A speculated hike in the Goods and Services Tax (GST) at this year's Budget is set to make an impact on consumers, said economists.
UOB economist Francis Tan said that if the hike comes to pass, prices of these festive goods would go up next year, as retailers are unlikely to absorb or defray the tax increase under strong economic conditions.