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Snap Insight: Rising water, transportation costs make it seem like inflation isn’t abating

SINGAPORE: National water agency PUB announced on Wednesday (Sep 27) that water prices in Singapore will increase by about 18 per cent over the next two years.

The price increase comes amid a significant escalation in the expenses associated with water production and supply, such as energy, construction and manpower costs.

But is it the right time to raise water prices? How does it affect Singapore households?

A PERIOD OF HIGH INFLATION

It is understandable that the hike in water prices will generate greater public concern about rising costs of living. Already, COE prices have reached unprecedented levels, with premiums for larger cars surging past S$140,000 (US$102,000). Additionally, public transportation costs are set to rise, with bus and train fares for adults increasing by 10 to 11 cents per journey.

Moreover, Singapore residents have been experiencing a period of high inflation. Despite consumer prices rising at a slower pace for a fourth consecutive month in Singapore, core inflation is still at 3.4 per cent. This is well above the 2 per cent rate which the Monetary Authority of Singapore determines as consistent with overall price stability in the economy.

The average price of most products and services is still higher than that of the pre-pandemic period. Over the past three years, the global supply chain has experienced significant disruptions, with escalating geopolitical tensions and record-high commodity prices. These factors have collectively contributed to high inflation in Singapore.

At the same time, Singapore consumers’ purchasing power has not strengthened significantly. While 2022 saw nominal wages grow by 6.5 per cent – the largest increase in a decade, this growth was dampened by inflation, as real wages grew only by 0.4 per cent, the smallest increase since 2012.

Economic forecasts suggest inflation will taper off in the second half of the year due to weakened global demand and the recovery of supply chains. However, with rising costs of transportation and utilities, there appears to be no indication of inflation abating to the man on the street.

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WATER PRICE HIKE LIKELY WON’T CAUSE STICKER SHOCK

It is evident that the price increase for water is unavoidable unless new technology can improve the production process and bring costs down.

Yet the water price hike may not necessarily cause sticker shock. After the hike takes full effect, HDB households and non-HDB households will see their monthly water bills increase by an average of S$7 and S$8 respectively. PUB said these increases amount to a 2.5 per cent hike per year since its last revision of water prices in 2018.

Additional cost-of-living support measures for Singaporean households will also be announced soon, which may go some way in offsetting the water price hike.

Moreover, as water prices rise, there is likely to be a general reduction in water consumption. This can contribute to water conservation efforts and the promotion of a sustainable environment.

Currently, the most important thing is to ensure that people do not become overly anxious about the increasing cost of living. Otherwise, there’s a likelihood that they will cut back on their consumption or investments in various areas, potentially negatively impacting economic recovery.

Xu Le is a lecturer in the Department of Strategy and Policy at National University of Singapore (NUS) Business School. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.

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