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Singapore’s inflation hits 4-year high due to steep price hikes in electricity and gas

In a news report published yesterday ('Singapore's core inflation rises to 1.9% in July due to spike in electricity and gas prices', 23 Aug), Singapore's core inflation rose to 1.9 per cent in July, marking its highest level in nearly four years.

This is according to the latest figures from the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI).

The steep hike in core inflation was largely due to "a larger increase in the cost of electricity and gas", the joint statement from MAS and MTI said.

The cost of electricity and gas registered a steeper 12.7% rise in July as compared to the 3.7% increase in June. This reflects an upward revision in electricity tariffs in July following the pickup in global oil prices in the preceding quarter, the statement added.

"Imported inflation is likely to rise mildly. Global oil prices have rallied since the start of 2018 and are expected to average higher for the full year as compared to 2017. Meanwhile, global food commodity prices are projected to rise slightly as demand strengthens amid ample supply conditions," MAS and MTI said in their forecast.

"Domestic sources of inflation are expected to increase alongside a faster pace of wage growth and a pickup in domestic demand. However, the extent of consumer price increases will remain moderate, as retail rents have stayed relatively subdued and firms’ pricing power may be constrained by market competition."

The cost of living has been a prime concern among Singaporeans, with Prime Minister Lee Hsien Loong acknowledging citizens' worries in his National Day Rally speech on Sunday (19 Aug). In tackling Singaporeans' worry, he advised Singaporeans to "manage" their living lifestyle like going for $3 meals at hawker centres.

Electricity tariff doesn't come down as fast as oil prices

At the rally, PM Lee also said that electricity tariffs today cost less than 10 years ago. He put up a chart showing that in 2008, the electricity tariff was 25.07 cents/kWh while presently, it is slightly lower at 23.65 cents/kWh.

"Unfortunately, we all remember vividly when the electricity tariff goes up, but when the tariff comes down, we forget quickly," he said to the laughter of the audience at the rally.

He explained that Singapore's electricity is generated from natural gas and its cost fluctuates according to global oil prices.

So, ten years ago on 19 Aug 2008, the crude oil price was US$113.9 per barrel. As at 21 Aug 2018, it was US$72.7 per barrel. That means to say oil prices have come down some 36.2% over the last 10 years, but Singapore electricity tariff came down only a mere 5.7% (from 25.07 to 23.65 cents/kWh).

On the website of Energy Market Authority (EMA), it said that electricity tariffs are calculated based on 2 components - fuel cost and non-fuel cost.

The fuel cost (imported natural gas cost) is tied to oil prices while the non-fuel cost refers to the cost of generating and delivering electricity to homes. Non-fuel cost includes: power generation cost including capital, manpower and maintenance cost, grid charge, billing and meter reading cost, and power system operation and market administration fees.

But there is a third component which EMA forgets to add - profits of SP Group.

SP Group makes almost $1 billion a year

According to SP Group's annual report, it has been revealed that it actually made a net profit after tax of $948.8 million in the last FY ending on 31 Mar 2017.

And for the previous FY before last (ie, FY2016), its net profit after tax was $923.5 million, also close to $1 billion.

SP Group which is wholly owned by Temasek Holdings said that it reviews the electricity tariffs quarterly based on "guidelines set by the Energy Market Authority (EMA)".

Incidentally, PAP leaders like Lawrence Wong and Chee Hong Tat used to head EMA. The current Chairman of EMA is Ng How Yue, husband of MP Tin Pei Ling.