Food retail prices set to
rise as supplies cost more
Supply price index for food jumped 10% in October over last
year
Straits Times, The
(Singapore)
Money
December 3, 2007
Author: Erica Tay, Economics Correspondent
THE price of a meal out seems set to rise as food supply costs,
especially for imports, soared for the second month in a row.
Many eateries have yet to pass on the higher charges to customers,
but economists believe they will not be able to hold out much
longer, given the severity of the cost hikes.
Official figures released last week showed that Singapore's
domestic supply price index (DSPI) rose 4.9 per cent in October
from a year ago, and its food component, 10.3 per cent. This
followed a 10 per cent jump in September.
While its more famous cousin, the consumer price index (CPI),
tracks price rises faced by end-consumers, the lesser-
known DSPI tracks the prices of goods made locally or imported that
are retained for use in the domestic economy.
This means that while the increase in the price of a bowl of
noodles is reflected in the CPI, increases in the prices of the
ingredients - such as flour, meat and condiments - are reflected in
the DSPI.
The DSPI showed prices of live animals were 24.5 per cent higher in
October than a year ago; of eggs and dairy produce, 41.6 per cent;
of vegetables and fruit, 5 per cent. Fish prices fell 0.5 per
cent.
DBS Bank economist Irvin Seah said the new data signals that faster
rises in consumer food prices are probably just around the
corner.
Food makes up the largest chunk of the CPI, which is used to
calculate the headline inflation rate.
The average Singapore household saw its food bill go up by 4.3 per
cent in October from a year ago.
'Consumer food prices usually follow supply prices with a lag, as
retailers and food sellers tend to absorb cost hikes for some
time,' Mr Seah said.
United Overseas Bank economist Ho Woei Chen expects food inflation
to rise, saying: 'Suppliers will eventually have to pass on higher
costs.'
She said rising rents, wages and food costs will force those in the
catering sector to raise prices for consumers.
Restaurateur Nicholas Pang has seen ingredients rise 20 per cent in
price in the past six months.
'Pork and poultry cost 15 per cent more, and cooking oil is up by
30 per cent,' said Mr Pang, who runs three Japanese restaurants and
one fast-food outlet.
Still, he has not raised his menu prices. He said: 'It doesn't make
sense to up your prices every time costs increase.'
He prefers to sign forward contracts with suppliers to lock in
costs, and switch to alternatives when possible.
'But if food costs keep rising, we must at some point review our
prices,' he noted.
Increasingly expensive imports - particularly of meat, live
animals, dairy produce and eggs - are a major factor behind higher
supply prices.
Fuelling the jump in farm produce prices is a global supply crunch
caused by bad weather and by a shift in farm use towards growing
crops for biofuels as rising crude oil prices make biofuels more
viable, explained Ms Ho.
The food portion of the import price index also rose in October, by
more than 10 per cent from a year ago.
Higher food inflation is a global issue, said Standard Chartered
Bank economist Alvin Liew. He said: 'Agricultural produce prices
have soared in countries such as China, from which Singapore
imports a great deal.'
He predicted CPI food inflation will average 4 per cent next
year.
Mr Seah was more pessimistic: 'We are looking at between 5 and 6
per cent.'
Low-income groups will be hit the hardest by higher food prices as
a greater chunk of their income goes to food, he added. Thus, he
argued, 'policy action is needed to cushion rising food
costs'.
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Copyright, 2007, Singapore Press Holdings Limited
