SINGAPORE: If you have always wondered why that
chair from IKEA or that pair of jeans from Gap is priced higher in
Singapore than some other countries, you are not alone. The
Monetary Authority of Singapore (MAS) seems just as keen to find
out.
Calling a tender to conduct a consumer products
price comparison study earlier this month, the MAS said: "Despite
these goods being exactly the same in many instances, the law of
one price does not appear to hold. Anecdotal evidence suggests that
prices of IKEA products and mid-range apparel, including Gap and
Abercrombie & Fitch, are higher in Singapore compared to many
other countries."
Some factors that could explain the price
differentials include productivity and wage differences across
countries, variation in non-tradable costs like rental and taxes,
transport costs and price stickiness when it comes to exchange rate
fluctuations, the MAS stated in its tender document.
The study's aim is to identify which factors, and their
significance.
Using case studies of an international mid-range clothing retailer,
a consumer electronics retailer and possibly furniture giant IKEA,
the MAS also wants to identify the extent of price differentials of
the same products between Singapore and at least 10 other
countries, the document stated.
As Singapore grapples with inflationary pressures stemming from the
tight labour market and rise in global food prices, economists told
TODAY that the study would help the country's central bank better
understand factors driving prices and inflation here.
It would in turn help the MAS determine "what targeted policies
might be needed to help contain inflation", said Singapore
Management University economics don Davin Chor.
"It would be useful to know, for example, whether it is operating
costs in Singapore that are primarily driving price levels here or
whether it is competitive conditions and strategic considerations
that are leading firms to mark up their prices in a particular way
in the local market," he added.
Through the study, the MAS could also understand how much of
exchange rate movements are passed on to consumers, and how
quickly, said Assistant Professor Chor.
Citigroup's Vice-President of Economics and Markets Analysis, Mr
Kit Wei Zheng, agreed. "For instance, if for whatever reasons,
price mark-ups are kept consistently high, import cost savings from
a stronger exchange rate may not be fully passed on to consumers,"
he said.
Singapore's exchange rate is among the instruments used by the
Government to manage inflation, and the MAS last month decided to
continue its gradual appreciation against a basket of
currencies.
Inflation this year, excluding imputed household rentals on
owner-occupied homes, is expected to be slightly below 4 per cent,
said Deputy Prime Minister Tharman Shanmugaratnam last week in
response to a Parliamentary question.
Previous research on price differentials has been conducted.
A 2001 study using prices of 119 IKEA products across 25 countries
- including Singapore - concluded that price differentials were not
due to differences in exchange rates, local costs, tariffs or
taxes, but were largely due to differences in mark-ups as a result
of strategic pricing across countries, said the MAS tender
document.
The tender closes on November 27.
- TODAY
