WHAT ARE CONSUMERS SPENDING ON?
Core inflation had been rising steadily in 2022, hitting a near 14-year high of 5.3 per cent in September before holding steady at 5.1 per cent for the rest of the year.
That the high revenge spending is a key cause of inflation is perhaps understandable, even if it’s unusual. However, the rise in prices at the fastest pace in years is already making life difficult for many here. Moreover, the adverse impact goes beyond just higher costs and is cause for even greater concern.
In December 2022, for example, the consumer price index for the clothing and footwear group rose 6 per cent year-on-year, while recreation and culture prices increased 7.5 per cent, according to official data released on Wednesday (Jan 25). Holiday expenses were 11.3 per cent higher.
Rather than putting their savings into investments or emergency funds, consumers in the post-pandemic recovery are engaging in revenge spending and often using their savings for pleasures like travel.
Worryingly, more Singaporeans are also adopting undesirable habits such as gambling more than they can afford to lose, and spending beyond their means to keep up with peers, OCBC found in the Financial Wellness Index it released in November 2022.
Consumers are also spending more of their income than before and many are seeing their incomes grow more slowly than inflation. DBS said in August 2022 that 40 per cent of its customers saw their income grow less than 5 per cent in the past year, which is less than the core inflation rate in the past few months.
While customers have, in general, continued to spend within their means, the bank said, the ratio of expenses to income increased to 64 per cent for the customers sampled in May 2022, compared with 59 per cent the year before.
A key reason for that higher spending is, very simply, pent-up demand.
After more than two years of pandemic measures, Singapore eased most of its COVID-19 rules on Apr 26, 2022, including caps on group sizes and the number of employees who could return to the workplace.
The next month, in May, Singapore’s retail sales shot up 17.8 per cent year-on-year. Discretionary industries such as clothing and footwear saw takings increase by 99.8 per cent. Department stores recorded a 73.2 per cent jump in sales, while watches and jewellery saw a growth of 60.1 per cent.
Travel exemplified the problem. Relaxed border controls, manpower shortages and lower capacity resulted in inflation in travel services rising from 6.2 per cent in the second quarter of 2022 to 9.2 per cent in the third quarter.
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