When dozens of Chinese bus drivers held Singapore’s first strike in 26 years last week, the island deported the perpetrators. Getting rid of the soaring prices that are emboldening calls for higher wages won’t be as easy.
Rising housing, transportation and business costs have given the city state the fastest inflation among the developed world’s biggest economies. The illegal protest by the SMRT Corp. (MRT) drivers in late November may herald a further escalation in price pressures, as even foreign laborers whose cheaper wages have helped restrain inflation express dissatisfaction with their incomes.
“All price go up, only salary no up,” Delowar Hussin, a Bangladeshi laborer, said as he hauled a bag of concrete debris into a dumpster outside a Singapore office tower housing Morgan Stanley (MS:US) and Citigroup Inc. (C:US) Hussin, 41, said he earns a basic wage of S$18 ($15) a day, a rate that hasn’t changed in the past four years even as his monthly living costs jumped to as much as S$400 from less than S$300.
Singapore is grappling with the elevated inflation that comes with years of economic growth and population expansion on an island smaller than New York City, with rising demand fueling record property and car prices. The country tightened monetary policy this year while neighbors from Thailand to the Philippines cut interest rates, spurring gains in the currency even as the government predicts gross domestic product will rise at the slowest pace in three years.
“Singapore Inc. is facing an adjustment period and there is no easy way out,” said Kit Wei Zheng, an economist at Citigroup who previously worked for the Monetary Authority of Singapore. “The work-cheap model is reaching its limits especially since the cost of living is high. With inflation likely to stay above historical averages, macroeconomic policy will likely remain on a tightening bias.”
Singapore has the highest inflation rate among 27 economies with GDP of at least $100 billion and classified by the International Monetary Fund as advanced. Price gains on the island of 5.3 million people have reached 4 percent or more every month bar one since November 2010, more than double the 1.9 percent average in the past two decades.
Inflation is forecast by the central bank to average more than 4.5 percent this year and be in a 3.5 percent-to-4.5 percent range in 2013. “Persistent tightness” in the labor market will support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices, the central bank and Trade Ministry said last month.
“I wouldn’t be surprised if labor strife becomes a more frequent occurrence going forward,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “High inflation will very likely persist in the years ahead. Workers will surely demand higher wages to compensate for their loss in real income.”
In a country that’s host to 2 million foreigners, many hotels, restaurants, builders and shipyards rely on overseas workers willing to toil for lower wages than Singaporeans, and employers are bracing for the possibility of further discord. Two workers from China refused to come down from the top of a crane today, Channel NewsAsia reported on its website. Police said the incident was related to a work dispute and that Singapore Civil Defence Force and Ministry of Manpower officials are also at the scene.
Singapore Health Services Pte, the country’s largest healthcare group with more than 16,000 employees, is reviewing its business contingency plans in the aftermath of the drivers’ strike, said Goh Leong Huat, deputy group director of human resources for the government-linked operator of hospitals and polyclinics.
The government said in March it will spend about S$200 million to increase salaries of healthcare workers. About 20 percent of public healthcare employees were foreigners at the end of 2011, according to the Health Ministry.
Average urban salaries in China increased 12 percent in the first nine months from a year earlier without adjusting for inflation, after climbing 14.4 percent for all of 2011 and 13.3 percent in 2010, government data show. In Indonesia, the government said it may raise the lowest required wages to 2 million rupiah ($208) a month, while Malaysia this year joined Thailand and Vietnam in implementing a minimum income. Singapore doesn’t have such a rate.
“Wages in neighboring countries are playing huge catch-up and in China in particular, wages have been outstripping GDP growth,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “People will start assessing whether the trade-offs to come to a foreign land, working long hours and being away from the family is worth it.”
Median monthly incomes in Singapore rose 7.1 percent this year without adjusting for inflation, after climbing 8.3 percent in 2011, according to a preliminary report on the island’s workforce by the Manpower Ministry last month.
Singapore’s jobless rate fell to 1.9 percent last quarter, while Australia reported today its unemployment rate unexpectedly dropped in November. New Zealand’s central bank kept interest rates unchanged, while South Korea’s economy grew less than initially estimated in the third quarter.
The European Central Bank and the Bank of England will probably keep their benchmark rates unchanged today, according to Bloomberg surveys. A report may show the euro-area economy succumbed to a recession for the second time in four years last quarter, reiterating an earlier estimate. The U.S. Labor Department may say fewer Americans filed first-time claims for unemployment insurance payments last week, a survey showed.
Singapore, which uses the exchange rate to manage inflation, unexpectedly refrained from slowing the pace of its currency’s appreciation in its October policy review even after the economy contracted last quarter. The Singapore dollar’s 6.3 percent gain this year has done little to damp inflation stemming from domestic price pressures.
Home prices climbed to a record in the third quarter, and the cost of a permit for a small car rose to an unprecedented S$78,523 on Dec. 5, from S$46,889 at the start of the year. The country auctions limited vehicle permits to control congestion and pollution.
Adding to price pressures is a government drive to cool the inflow of foreign workers, after voter anger against competition for jobs, education and housing boosted support for the political opposition in elections last year. Opposition parties have said that the large numbers of overseas workers have depressed local wages.
Higher car and property prices and the measures to tighten rules on hiring overseas workers are driving up the “overall cost structure” of the economy, spurring inflationary pressures that are a result of “self-imposed” policies, according to DBS’s Seah.
“Singapore used to have the upper hand on inflation but somehow has been losing its edge in this aspect in recent years,” said Seah, who formerly worked for Singapore’s Trade Ministry. “Inflation will remain significantly higher than normal for as long as those policy measures remain in place. The policies are growth-limiting and pushing Singapore closer and closer toward the brink of recession.”
The city-state avoided falling into a technical recession after second-quarter GDP data was revised to show the economy grew. The $240 billion economy is forecast by the government to expand about 1.5 percent this year and 1 percent to 3 percent in 2013.
The dispute between SMRT and more than a hundred of its bus drivers from China led to the repatriation of 29 protesters, while five others were charged in court for instigating the strike. Of the five, one was sentenced to six weeks’ jail on Dec. 3 while the rest were allowed bail after appearing in court today.
At the core of the disagreement was a disparity in wages that the company pays the Chinese nationals and their Malaysian and Singaporean counterparts. Even before the strike, SMRT, the island’s biggest subway operator and one of its two main bus companies, had said that rising wage costs would impact its profitability.
The incident highlighted lingering public resentment for the presence of some foreigners in the country, even as it showed overseas laborers demanding better treatment from their Singapore employers.
In a snap poll of 313 Singapore citizens conducted by a government feedback unit and released after the strike, about eight of 10 respondents said the Chinese drivers should be “punished to the full extent of the law” and authorities have “acted swiftly” to bring the situation under control.
For Hussin, who has to support his wife, child and mother in Bangladeshi city of Khulna, the repercussions of asking for higher pay may be more than he can afford.
“Not happy also no choice, have to work,” he said. “I want to ask my boss for more money but scared he will scold and tell me to go back to Bangladesh. Maybe after my contract over, I look for other company that pay me more or go home.”
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