25 February 2011

Helping the Poor Deal with Inflation

The topic of inflation was raised at an event organised by National Trades Union Congress for its members on 23 February 2011.

In response, finance minister Tharman Shanmugaratnam said that the majority of Singaporeans, including those in the lower income group, would receive "far more [from the budget] than the increase in inflation this year".

He gave the example of a family of four with a monthly household income of $2,000, which would receive $3,500 (or approximately $290 a month), four times the increase in the cost of living faced.

First, the median household income from work in 2010 was $5,000.  A household with a monthly household income of $2,000 is very poor.

Second, there are a large number of households with monthly household income less than $2,000.  10.5 per cent of households did not have anyone who worked.  In another 11.9 per cent of households, the monthly household income was less than $2,000.  Taken together, in 22.4 of households, the monthly household income was less than $2,000.  (The minister was reported to refer to Singaporeans, i.e., citizens.  The data from the Census Of Population 2010 relate to residents, i.e., citizens and permanent residents, as a group.)

Third, probably many if not most of the households in which the monthly household income is $2,000 or less need financial assistance to meet the cost of living, not just for the expected increase in the cost of living.  There is a difference between the cost of living and the increase in the cost of living — the latter is only the incremental amount.

Based on the numbers provided by the minister, inflation in 2011 will increase that family's cost of living by $875 ($3,500 / 4).  Taking average inflation in 2011 as 3.5 per cent (Monetary Authority of Singapore forecast Consumer Price Index inflation to average between 3.0 and 4.0 per cent), this means that the said family's cost of living in 2010 was $25,000.

---------------
Notes

1.  "Inflation, Worker Levy Key Concerns of Unions", The Business Times, 24 February 2011.

2.  Census of Population 2010, Statistical Release 2: Households and Housing.

3.  Remarks by Monetary Authority of Singapore at the presentation of the "Economic Survey of Singapore 2010", 17 February 2011.

No comments:

Post a Comment