The effects of a high inflation rate on my household budget

Make no mistake, inflation has truly arrived on our shore with its tentacles reaching every nook and cranny of our little island. Instead of being transient, it has grown increasingly persistent to the extent there is no escaping from its insidious effects anymore. Just last month, the Department of Statistics Singapore announced that February 2022’s Consumer Price Index increased 4.3% year-on-year.

As a man who started a family only in recent years, I have grown accustomed to a healthy inflation rate of 1-2%. Therefore, 4.3% inflation rate came as a rude shock and a stark wake-up call when it comes to managing the household finances. There is no denying the effects of a high inflation rate would have on my household budget. The bad news is that it’s probably going to get worse before it gets better as the month of February has yet to capture the full-blown effects of the Ukraine war. Just look at US CPI which already reached 8.5% in March 2022. Besides tightening your belt on multiple fronts, I also share some tips on how it is possible for household to save even when you spend.

Consumer Price Index (CPI)

Let’s get the concept of Consumer Price Index out of the way first. CPI is captured by measuring the price of a fixed basket of goods consumed by the average resident household in Singapore. As shown in the chart below, over 60% of the basket is weighted towards spending on housing, utilities, food and transport.

A 4.3% year-on-year increase in Feb 2022 simply means that this same basket cost 4.3% more than it was back in Feb 2021. Some of you might feel that the recent increase across goods and services certainly felt MORE than the 4.3% increase, so why was it not captured accurately?

That is because CPI reflects the collective experience of inflation across all households and not the experience of any particular household. Depending on the type and proportion of goods that your household consumes, your basket is therefore different with your neighbour’s. That is why the effects of inflation may affect your household’s budget differently.

An indirect form of inflation is shrinkflation whereby the size of a product is reduced while keeping the price the same. This helps the producers to preserve margins as cost of production rise. It alters your consumption behaviour because you may now need to purchase more quantities compared to the past to satisfy the same demand. Based on the Information Paper Series that I read, it appears that product sizes have been taken into account when computing the CPI. I am not 100% sure on this and I do have my doubts.

Regardless, I think we can all agree that household’s budgets are feeling squeezed because prices seem to be rocketing with no near-term ending in sight.

Inflation on Essential Goods and Tips To Save While You Spend

1) Egg

Egg is one of the quintessential items in a grocery basket. I usually get a tray of eggs from a GroupBuy host in my neighbourhood. I calculated how the price of a tray of 30 eggs (70g) have increased since Jun 2021.

The initial 50-cent increase was bite-sized enough to be barely noticeable. However, the latest round of increase (+25%) over 3 months was definitely not easy to stomach. As shown in Diagram 3, the same tray of eggs have increased by 41.3% or $3.30 in absolute quantum from June 2021 to April 2022.

Tip #1: Download the price kaki mobile app developed by CASE (Consumer Association of Singapore)

Here is how to always find the cheapest grocery item in your neighbourhood. Simply download the free Price Kaki mobile app by CASE and it will show you the cheapest grocery essentials based on the filter that you have set.

Not surprisingly, FairPrice vegetable oil emerged as the cheapest choice as shown in Diagram 4. Buying house brand is one of the surest ways to reduce the bill size of your grocery budget. Overall, I find Price Kaki to be a very easy mobile app to use with little effort required on my part.

2) Hawker food

Living in the heartlands, eating at a hawker center is one of the activities that I look forward to the most. Olympia has recently also taken a liking towards roti prata.

Unfortunately, the price of roti prata had also increased given the scarcity of flour and eggs. 1 prata kosong can easily cost $1 these days. Similarly, majority of other types of food and beverages sold at coffee shops and food centres have also hiked their prices.

Tip #2: Lower your cash outlay with CDC vouchers

The CDC vouchers issued in 2021 can be used to offset your purchases at heartland shops and food centers. I wrote an article on how the CDC Voucher Scheme works, so do claim it if you have not already done so. The good news is that all Singaporean households will be getting an additional round of CDC vouchers in May 2022. This was announced in the Budget and its implementation has been brought forward to ease the pain of inflation.

3) Petrol

For a period of time, news of pump retailers adjusting their prices constantly flood the local papers. It even prompted a member of parliament to raise this issue during the debate of Budget 2022. As at writing, the lowest grade petrol has crossed $3/litre before discount. Many of my peers who drive are complaining about the increase. Even though I don’t own a vehicle, my transport expenses have inevitably gone up as well. That is because SMRT, taxi operators as well as private car hire operators have all announced price increases in the past month to cope with surging fuel costs.

Tip #3: Drive less, take more public transport or cycle

I have long been touting the effects of ditching the car for BMWC (bus-MRT-walk-cycle). My household saves about $1,000 a year on average when we opt for the 2-wheeler over private and public transport. Besides cost savings, it also serves as a good cardio workout. If you are looking to get a bicycle, there’s no better time because you can now get the Tilt 500 XS 14inch folding bike (worth $360) from Decathlon for FREE. From now till 4 May, new-to-bank customers simply need to sign up for a HSBC credit card and meet the minimum spending criteria will be eligible to receive this sign-up gift. Participating HSBC cards include HSBC Advance (I personally use this to receive 3.5% cashback), HSBC Revolution and HSBC Visa Platinum credit cards.

I am excited about this SingSaver promotion because my household has been using the Tilt 500 Foldie for almost a year already. It weighs only 9kg which makes it super portable to be carried on both MRT trains and cars.

4) Mortgage Bill

For those who are on floating home loan packages, when was the last time that you have checked your bill? I suggest you do a quick comparison because you might have noticed that your bill size is gradually creeping up. This is because US Central Bank has been tightening monetary policy to rein in runaway inflation. Hopefully this does not result in stagflation instead. Unfortunately, with the ongoing war in Ukraine putting more pressure on energy and commodity prices, the Fed will continue to hike its key lending rate several more times this year. If what the market predicts pans out, 3M SIBOR could potentially reach 1.5% -1.7% by July. If you add in the margin over the benchmark, your floating home mortgage would potentially cross 2%, a far-cry from the 0.5$ -1% that you might be paying just a couple of months ago.

As I have stated last month in this article, it is important to evaluate your existing home mortgage to understand how you will be affected down the road.

Tip #4: Refinance your home mortgage if circumstances permit

You can head over to PropertyGuru’s free mortgage comparison tool to find out how much you can save by refinancing your existing home loan.

As shown in Diagram 7, lowering your interest payment can potentially save you hundreds of dollars every month. This is a significant amount of saving that triumphs all the monetary-saving tips aforementioned in the article. Moreover, this is a one-time effort and you stand to enjoy the benefit for at least the next 2-3 years. Wall Street is expecting a cumulative interest rate hike of 1.5-2% by end 2022, so don’t be caught off-guard then. Business Times reported that some banks have already suspended fixed-rate home loans but dont despair as this only applies to some banks. Check with a qualified home mortgage consultant from PropertyGuru.

Conclusion

I got to stop here because there are simply too any examples of the prices of everyday goods going up. SP Group hiked electricity and gas tariff in 1Q 2022 and even Daiso had to disguise its price hike by stating it would now start charging GST.

Even with the tips that I have shared in this article, I would like to stress that there is eventually a limit to how much expenses that can be cut from your household. Besides, certain fixed expenses simply cannot be cut without dramatically affecting your quality of life. Instead of a race to the bottom, why not brainstorm on ways that you can increase your income?

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