20131222 ‘Affordability’ illusion created by unrealistic inflation rate used on MAS website calculator

The Monetary Authority of Singapore (MAS) appears to have an unreliable calculator which churns out inflation figures pertaining to another planet. https://secure.mas.gov.sg/calculator/goodsandservices.aspx (calculator shows up to 2011 only)

In March last year, DPM Tharman had caused an uproar when he said in Parlaiment that “a family with a monthly income of as low as $1,000 can now purchase a small flat”. link Perhaps the DPM, who is also the MAS chairman, had been relying on a whole range of inflation figures from its website calculator and was not aware of serious flaws?

The MAS calculator calculates how much $x would cost in Year 2 from Year 1.

For example under housing, the MAS says a property costing $250,000 in 2001 (Year 1) would cost $321,905 in 2011 (Year 2) after factoring in the inflation rate for a 10 year period. The price increase is about $71,000.

Over a 20 year period, the same unit would have cost about $369,000, a slight increase of only $48,000.

But the MAS has been using an inflation rate that does not gel with reality. In 1985 when I purchased a 5 room flat from the HDB, it cost about $80,000. Using the MAS calculator, a similar BTO flat should cost about $126.048! The reality is the average price of a 5 room BTO flat cost three times more.

Let’s take a resale unit. In 1992, I sold my flat to a Hong Kong PR for about $170,000. MAS figure for the unit in 2011 is about $246,000. According to the HDB, the lowest resale price of a 5 room flat in Simei St 1 during the last 12 months is $530,000. link Again, MAS has been using a deeply discounted inflation rate translating into less than half the actual price.

Under the category of clothing and footwear, a purchase costing $20 in 1991 should cost about $22 in 2011. The MAS uses an annual rate of inflation of about .5 %.

What’s even more laughable is the calculation for the communication category. We are expected to believe that after a 20 year period, communication has become cheaper!

DPM Tharman and other cabinet ministers who had insisted that public housing was affordable with a monthly income of $1000 is not entirely wrong. They were not relying on any China-made calculator but our very own MAS using an incredible average inflation rate of 1.76 % from 1991 to 2011.

The input for the MAS calculator comes from none other than the best and brightest, highest paid civil servants. Their IQ is so high that they are able to construct our cost of living till it is unbelievably low so that politicians are able to tell citizens that the most expensive public housing is affordable. How could they ever be wrong?

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