How much will it cost to live in Singapore in 2050

Of late, we have been hearing about how Singapore is becoming more and more expensive each year.

ECA International, a global HR consultancy firm, published a survey recently on the cost of living in various cities in the world. Unsurprisingly, Singapore's ranking went up by two positions in 2016, as our island state ranked 16th.

Exhibit 1: Top 20 global rankings for most expensive cities in the world

This leads us to the next question of how expensive Singapore will be if we continue on this trajectory in the future of becoming more expensive.

But first, let us take a look at how Singapore has performed in the last few years after the Global Financial Crisis (GFC).

Inflation has come down quite significantly in the last two years

To start off, inflation as defined by Investopedia, is the rate at which general level of prices for goods and services is rising, and consequently, the purchasing power of currency is falling.

In short, it simply means our currency is losing its ability to buy the same amount of goods as time goes by (e.g. chicken rice today cost $3.50, compared to $2.50 10 years ago).

Inflation is generally highly correlated with the country's gross domestic product (GDP) growth. In the last two years, GDP growth for Singapore has been at an all time low since the end of the GFC. Inflation likewise has actually been negative (i.e. deflation).

Given the current situation, we expect Singapore to enter into a new norm with low growth and relatively lower inflationary pressure in the future.

Exhibit 2: Deflation in the last two years

Food: How much will my chicken rice cost in 2050?

We recently went to a famous food centre located in the Central Business District (CBD). A bowl of fish soup had just increased its price from $4.50 to $5.00, a staggering 11.1 per cent increase.

Being the curious team we always are, we asked the storeowner what caused their price increment. We were told it was due to inflation. We were surprise to hear that, as we thought inflation has been declining, as seen in Exhibit 2. Why did the hawker raise his prices then?

Unlike overall inflation, food prices have never turned negative before in Singapore. Being in a country with no natural resources, we tend to be more vulnerable to prices set by others.

The average 10-year food inflation was 2.9 per cent, slightly more than all-inflation of 2.4 per cent.

Using the 10-year food inflation rate, we should be expecting the $3.50 chicken rice today to cost about $9.16 in 2050, or 2.6 times the amount today.

Exhibit 3: Food price has not declined since 1990

Shelter: Things are not expected to be very bright here
Ever since 2009 to 2013, when cooling measures were introduced to curb the surge in housing prices, the housing market has become dull and unexciting. Price levels have been declining for multiple years. More significantly, from 2015 to 2016, inflationary pressures for housing have been in the negative zone.

Deflation for 2015 and 2016 was 3.5 per cent and 4.1 per cent respectively. Nonetheless, this deflationary pressure will not last indefinitely as the bulk of our wealth is still pegged to our homes. Therefore, we are expecting housing price inflation to be along the 10-year average for all-inflation at 2.4 per cent.

What this means is that we can expect a house that cost $400,000 today to be about $902,000 by 2050, 2.3 times the amount today.

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How much will it cost to live in Singapore in 2050