SINGAPORE: If you have always wondered why that chair from IKEA or that pair of
jeans from Gap is priced higher in Singapore than some other countries, you are
not alone. The Monetary Authority of Singapore (MAS) seems just as keen to find
out.
Calling a tender to conduct a
consumer products price comparison study earlier this month, the MAS said:
"Despite these goods being exactly the same in many instances, the law of
one price does not appear to hold. Anecdotal evidence suggests that prices of
IKEA products and mid-range apparel, including Gap and Abercrombie & Fitch,
are higher in Singapore compared to many other countries."
Some factors that could explain
the price differentials include productivity and wage differences across
countries, variation in non-tradable costs like rental and taxes, transport
costs and price stickiness when it comes to exchange rate fluctuations, the MAS
stated in its tender document.
The study's aim is to identify
which factors, and their significance.
Using case studies of an
international mid-range clothing retailer, a consumer electronics retailer and
possibly furniture giant IKEA, the MAS also wants to identify the extent of
price differentials of the same products between Singapore and at least 10
other countries, the document stated.
As Singapore grapples with
inflationary pressures stemming from the tight labour market and rise in global
food prices, economists told TODAY that the study would help the country's
central bank better understand factors driving prices and inflation here.
It would in turn help the MAS
determine "what targeted policies might be needed to help contain
inflation", said Singapore Management University economics don Davin Chor.
"It would be useful to know,
for example, whether it is operating costs in Singapore that are primarily
driving price levels here or whether it is competitive conditions and strategic
considerations that are leading firms to mark up their prices in a particular
way in the local market," he added.
Through the study, the MAS could
also understand how much of exchange rate movements are passed on to consumers,
and how quickly, said Assistant Professor Chor.
Citigroup's Vice-President of
Economics and Markets Analysis, Mr Kit Wei Zheng, agreed. "For instance,
if for whatever reasons, price mark-ups are kept consistently high, import cost
savings from a stronger exchange rate may not be fully passed on to
consumers," he said.
Singapore's exchange rate is
among the instruments used by the Government to manage inflation, and the MAS
last month decided to continue its gradual appreciation against a basket of
currencies.
Inflation this year, excluding
imputed household rentals on owner-occupied homes, is expected to be slightly
below 4 per cent, said Deputy Prime Minister Tharman Shanmugaratnam last week
in response to a Parliamentary question.
Previous research on price
differentials has been conducted.
A 2001 study using prices of 119
IKEA products across 25 countries - including Singapore - concluded that price
differentials were not due to differences in exchange rates, local costs,
tariffs or taxes, but were largely due to differences in mark-ups as a result
of strategic pricing across countries, said the MAS tender document.
The tender closes on November 27.
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