'Pricey in Singapore' unlikely to last

THE Monetary Authority of Singapore's (MAS) latest macroeconomic review gives a positive if sobering picture of the economic outlook: While prospects for the global economy have brightened, a mix of cyclical and structural factors will continue to affect Singapore's growth profile as it pushes on with restructuring efforts. Cost pressures are not expected to abate anytime soon.

For most readers, however, what probably caught attention in particular in the 99-page report was a little feature on consumer price differentials that says much about the strength of the Singapore economy. No doubt prompted by an Economist Intelligence Unit survey published early last month that - quite curiously - ranked Singapore as the world's most expensive city to live in, the MAS and the Ministry of Trade and Industry jointly commissioned a study on the extent to which prices of internationally branded goods differ between Singapore and other major cities. The findings - from an analysis focused on three global retail brands Apple, Ikea and Zara - confirm what many globally savvy Singaporeans already know: Prices of certain international branded goods cost more here than elsewhere. The study, while confined to those three brands (across some 650 products in all), gives some perspective to all the anecdotal notions. Prices in Singapore are above the median level in two-thirds of the products and below the median for one quarter of them. The trend is similar whether or not sales tax is factored in. And where prices are higher here, the price premium generally does not exceed 20 per cent. Overall, for most items, Singapore is neither the cheapest nor the most expensive among the 11 cities compared.

The big question is: What accounts for the higher prices in Singapore? The study attributes it largely to cost and demand factors - a conclusion that would square with intuitive reasoning. Indeed, operating costs - notably retail rentals - are not low in Singapore, going by regional or even global yardsticks. On a unit basis, the cost would be further skewed by its small market size. There is also the exchange rate factor. It is why a Bottega or Hermes handbag costs significantly more here than in Europe. More pertinently perhaps, relatively high prices in Singapore reflect in many cases the affluence of the consumer market. Retailers price their goods according to what they believe the market can bear - this has been the established pricing strategy, at least in the bricks and mortar retail world. But now, with the advent of e-commerce, as consumers everywhere - including Singapore - shop by clicking on a keyboard, price differentials across cities look set to narrow, if not eventually disappear when online shopping becomes the norm. According to PayPal's research, the size of the Singapore online shopping market reached $1.1 billion in 2010, and is forecast to hit $4.4 billion in 2015. As e-commerce takes hold, "pricey in Singapore" will become less and less of a phenomenon for consumers here.