Singapore likely to experience retail price increase as a result of fuel shock

SINGAPORE: The war in the Middle East, and attacks on the oil infrastructure and the blockade on the Straits of Hormuz will definitely impact oil prices and Singapore is already experiencing higher pump prices. Pump prices have breached the S$3 per litre mark, and may even go past S$4, should the conflict continue.

On March 12, Minister-in-charge of Energy and Science & Technology Tan See Leng said in a Facebook post that Singaporeans must also expect electricity prices to increase in the coming months.

Higher prices for fuel and electricity almost always lead to higher prices for consumer goods, since costs for manufacturing, logistics, and agriculture will also be affected, and these business owners will need to pass on these higher costs to consumers.

Lessons from history

The city-state has faced a number of fuel or energy shocks in the past. For example, during the global oil price spike from 2007 to 2008, the price of oil rose to over S$140 a barrel. This caused transport and electricity costs to rise, which led to inflation.

By extension, a few years later, as the world recovered from the financial crisis, there was a period of commodity price volatility from 2011 to 2014. The price of energy was high in 2011 because of a larger supply and a smaller demand, but it moderated by 2014.

More recently, the price of Liquid Natural Gas (LNG) surged across the globe from 2021 to 2022. This affected Singapore, where 95 per cent of electricity needs is generated from imported natural gas. It resulted in the collapse of several electricity retailers.

Who will need the most help?

As always in a crisis, it is the most vulnerable in society who will need the most assistance.

Kumaran Pillai, the publisher of The Independent Singapore, pointed out recently, “More support for marginalized communities is needed in times of crises.”

This would primarily include low-income households, elderly retirees, single-income families, young renters, and even gig workers, as these are all groups whose finances will have difficulty coping with higher prices for food, utilities, transport, and health care.

Households that have higher incomes are able to adjust their spending on luxury items in the event that food and utilities become more expensive by 5 or even 10 per cent. This is not the case in households with lower incomes, which means that the higher prices rise, the lower their standard of living falls.

How long till oil prices go down?

In truth, the answer depends on how long the conflict lasts. If the situation stabilizes relatively quickly, the price of oil could eventually fall to US$70 per barrel, according to a March 16 Reuters article. However, this may take time due to damage to infrastructure, the normalization of supply chains, and elevated shipping costs.

Till then, Singapore may expect goods to increase in price, and the most vulnerable groups in society will need more help. /TISG

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