Singapore, Britain, Japan and the US are all feeling the heat of higher costs
“What can we do? We are guests in this country. We either pay or we leave.”
Christopher Quek, associate district director at real estate agent Huttons, says prices have soared in the past three months as Singapore has relaxed restrictions. Some expats are transferring from Hong Kong, Beijing and Shanghai and Quek says he is also seeing new arrivals from South Korea, Japan, the United States and Australia.
There are so few options available that people are signing a two-year lease before they’ve even set foot in the property. Agents acting for renters are struggling to even put in an offer. “Many properties don’t last a day,” Quek says.
“It’s primarily an under-supply problem, and it will last at least until the end of this year, longer for bigger properties.”
While the rental increases are extreme, just about every item in the basket that makes up Singapore’s consumer price index is delivering regular sticker shocks.
Hawker stalls, the go-to for affordable meals, have been forced to increase their prices faster than the headline inflation figure.
Petrol prices have continued to soar and the priciest option passed the $S4-a-litre mark for the first time this month. All unleaded and diesel are above $S3 a litre.
In Britain, petrol passes $3 a litre
In Britain, inflation has also gone from being a dry statistic to something people can see around them, and feel in their hip pocket.
Petrol prices are rising at the fastest rate in decades and energy bills have doubled in a year – and both are substantially more than in Australia.
The Bank of England made headlines a month ago when it said inflation would hit 10 per cent by the end of this year, even as the British economy contracts.
The tangible, bleeding edge of this inflation breakout is at the petrol pump. Prices have surged this week at the fastest pace since 2005.
A litre of unleaded now averages £1.82 ($3.17), and at many petrol stations it has already breached the £2 mark. Filling the tank of a typical 55-litre car is now a triple-figure hit.
Motorist groups warn this isn’t the end of the road for petrol prices. But the government already cut fuel duty by almost 5 pence a litre in March, at a cost to the public purse of £2.4 billion. So there seems little more politicians can do.
Downing Street had been preparing a “name and shame” campaign for petrol stations that weren’t passing on the duty cut, but that has been swamped by the latest price surge.
Diesel prices are also ballooning, which will ramp up trucking costs and flow through into higher prices on supermarket shelves.
Freight Link Europe director Lesley O’Brien told the BBC the cost of running one truck was £20,000 more than last year – a 30 per cent increase.
Countrywide Coaches director Olivia Bell said her company was having to sell some of its buses to keep the show on the road.
The other pinch point in the British economy, which also spills over into every other price, is energy bills. Every country has been hit but in Britain, it has been spectacular. More than a dozen energy retailers have gone bust, and many households are unable to cope.
The government puts a cap on what energy suppliers can charge customers, and they usually compete to stay below that. But soaring wholesale prices have forced all of them to bill their users right up to the maximum.
In April, the cap for a standard household jumped 54 per cent to £1971 a year. At the next review in October, that will probably rise to £2800 – twice as much as a year ago.
The government has stepped in, offering every household £400 to help defray the cost, with people on welfare benefits getting another £650. That’s funded by £5 billion from a new 25 per cent windfall tax on oil and gas companies’ bulging profits.
But even so, the energy costs are crippling – and are rippling outwards. This week, it was reported that hundreds of swimming pools may have to close because they can no longer afford to heat the pool water.
Some agricultural producers who use greenhouses say they’ve had to leave half their sites empty because the cost of keeping the facilities at the right temperature has become prohibitive.
Valley Grown Nurseries boss Nof Nicastro told Sky News the costs are so high that he wasn’t sure he should have planted a crop this year.
Uniqlo shocks Japan with price rises
In Japan, rising prices are a shock for a population that has not experienced inflation for decades. All of a sudden, the price of everything – from electricity to petrol, beer and bowls of ramen – is increasing.
Popular clothing brand Uniqlo shocked consumers this week when it announced price increases of up to 1000 yen ($10.41) on the price of fleece and down jackets.
Uniqlo is the go-to brand for many people in Japan used to affordable quality clothing which costs far less than it would in Australia. It blamed soaring raw material costs and the weak yen.
The irony is the country’s policymakers have spent years chasing inflation. The Bank of Japan’s 2 per cent inflation target looks achievable for the first time since 2008. However, things are moving too quickly for Japanese consumers who face a triple whammy of rising prices, a falling yen and stagnant wages.
Japan’s central bank governor, Haruhiko Kuroda, found himself in hot water this week, blasted on social media for suggesting that consumers had accepted higher prices.
“I apologise for any misinterpretation of the wording,” he told reporters. “I did not intend to say that households are accepting price rises of their own accord, but that they are accepting them as a hard choice.” He told a parliamentary committee that his comments were not appropriate.
While inflation is still low compared to many other developed economies, prices are still rising at their fastest pace in three decades. The problem for the central bank is that it has achieved its inflation target without being able to offset this with wages growth or economic stimulus.
Like Australia, Japan also faces higher electricity prices and the government this week urged citizens to use less power this summer.
Four of Japan’s big power companies announced late last month that they would increase their electricity rates for households in July because of the rising cost of fuel for thermal power generation.
Prices are set to rise between 10 per cent and 20 per cent from last year to five-year highs, according to local media.
In China, many residents have been unable to spend much lately due to strict lockdowns in cities such as Shanghai. Those places experienced temporary spikes in the prices of basic goods such as vegetables, but that was mainly due to crippled supply chains.
China’s consumer price index rose 2.1 per cent year-on-year in April. That was higher than expected but still modest, especially when lined up against the United States, where prices are rising at the fastest pace in four decades.
White House BBQ on the rise
There are tentative signs that inflation could soon peak in the US, but it’s more a case of a runaway train braking slightly than returning to the station.
Most economists expect the latest data, due out on Friday (Saturday AEST), will show prices rose 0.7 per cent month-on-month in May.
But Morgan Stanley’s Ellen Zentner expects May will show a 0.9 per gain, raising the year-on-year rate back to 8.5 per cent. She blames food and energy prices, which could jump 1.1 per cent and 4.3 per cent in just that one month.
Energy costs are expected to be 30 per cent higher at the end of this year than they were at the start, and the annual food index is likely to rise by more than 10 per cent, easily the biggest gain since 1981.
An analysis of the White House’s planned July 4 Independence Day barbeque showed a 46 per cent increase in cost over last year. Meats, including chicken, are substantially more expensive thanks to higher feed grain and transport prices and an outbreak of avian flu that has forced farmers to kill 38 million birds.
There are two chunky contributors to inflation that might be coming off the boil. The first is rent. Overall, shelter inflation, which includes everything from renting a primary residence to lodging away from home, has grown substantially this year.
It’s up 5.2 per cent, the biggest gain since 1991, as more people have found jobs and returned to the cities for work. Inflation figures are skewed towards apartment rents which are driven up when demand increases for urban city living.
Goldman Sachs chief economist Jan Hatzius thinks rental market momentum appears to be slowing as “upward pressure on new rents dissipates, job growth and wage growth slow, and new apartment units hit the market”.
The second and most important area which could cause inflation to peak and ease back is wages. The annual rate of growth in hourly earnings has eased from 5.6 per cent in March to 5.2 per cent in May.
Bank of America economist Ethan Harris notes that average hourly earnings are running above trend in 64 industries that make up about 90 per cent of total private employment. But this is due to lack of supply, not higher demand than usual.
Industries experiencing this negative labour supply shock account for about 75 per cent of private payrolls, so when people return to more normal work patterns, the higher wages that employers pay to attract staff will ease back.
“Leisure, healthcare and ‘work-from-office’ industries were hit the hardest,” Harris says. “Workers are likely to rotate back to these high-touch industries as COVID fears subside. Increased participation should also help supply.”
As wage growth subsides, the willingness and ability of people to pay more for things also subsides, taking the heat out of prices.
This, of course, is all in line with the Federal Reserve’s plan to cool the economy just enough to bring inflation down. Around the world, people are hoping the Fed’s full-frontal attack on rising prices will have the desired effect without crimping the expansion the rest of the world relies on. Especially when China’s outlook is uncertain given its adherence to zero-COVID and the disruption that has caused this year.
“Most central banks underestimated inflation,” says Khoon Goh, ANZ’s head of Asia Research in Singapore. “During the pandemic, there was a supply shock, so the supply curve shifted in. Now things are normalising, demand has shifted out, so we have a price spike. Central banks have to reign in demand.
“The big risk is the Fed will overdo it and cause a hard landing. That would filter through to this region – and everywhere else.“