Spending habits alter inflation formula
Government fine-tunes Consumer Price Index ratios as buying patterns change
The government has tweaked the weightings of Consumer Price Index components to reflect recent changes in household spending.
Weightings for spending on digital goods, beauty services and education are up, while those for housing, durable goods, clothing and footwear, among others, are down.
Under the new formula, March inflation was 1.6 per cent, against 1.8 per cent under the old CPI formula.
Dominic Leung Kam-to, acting commissioner for census and statistics, said the old index, using weightings from 1999, had overestimated inflation. However, the government's inflation forecast for 2006, announced in February, remained unchanged at 2.3 per cent.
'The general trend of inflation in recent months is reflected in both the old and new indices,' Mr Leung said.
The government fine-tunes its inflation indicator every five years. Data for the latest revision was compiled from about 6,100 households between October 2004 and last September.
As part of the adjustment, the weighting of the index's largest component, housing, shrank slightly to 29.17 per cent from 29.91 per cent.
'This was mainly due to the general fall in rents for private housing compared to five years ago,' Mr Leung said.
Rents hit a trough in the aftermath of the Sars outbreak and have only recently begun to rise as two-year tenancies run out and are renewed at higher rates.
Food and miscellaneous services saw their weightings increase. Food, mainly meals bought away from home, rose to 26.94 per cent of the index, from 26.67 per cent. Miscellaneous services jumped to 16.15 per cent from 14.42 per cent, largely because of higher spending on health, education and beauty services.
'Households with higher monthly expenditures tend to spend more on these services,' senior statistician Marion Chan Shui-yu said.
Spending on utilities and transport also rose, while families were spending less on alcohol and tobacco, clothing and footwear and durable goods than in 1999.
Purchases of digital and electronic products, the prices of which have fallen dramatically, have increased in tandem with growth in household spending as a result of the robust economic recovery of 2004 and 2005.
Li Kui-wai, a City University professor of economics and finance, said that the previous five years were dominated by periods of deflation, but that the new adjusted index should not add more than 50 basis points to his forecast for 2006 of about two per cent inflation.
