HKMA website, November 15

Watch out for a big spike in the rate of inflation next year, our monetary chief warned us last week. Hong Kong's inflation numbers are too rosy because of one-off government hand-outs such as property rates rebates.

The warning has already proved belated. Only one day after Mr Yam published it in his regular weekly column on the Hong Kong Monetary Authority's website, the economic figures for the third quarter were released and they rang a much louder alarm bell.

The first chart shows you how loud. Forget that 1.6 per cent of the consumer price index, forget even Mr Yam's adjustments to make it 2.7 per cent. What we have is an underlying inflation rate that is already running at 4.4 per cent.

Now I shall grant you that the implied deflator for personal consumption expenditure in the gross domestic product is not the inflation benchmark that you most commonly look at. Just that description, and mine is as short as I could really make it, should be enough to put you off.

But in many ways it is a better measure than the more commonly used consumer price index (CPI). For one thing, it takes proper account of the rising amount of money we spend on consumer services rather than consumer goods.

These consumer services now make up almost 60 per cent of total consumer spending in the domestic market. This may seem high but think about it. What you spend on education, medical care, entertainment, personal service, transport and several other services is now probably more than you spend on food, clothes and toys.

The difficulty with the CPI is that it gives only an about 25 per cent weighting to consumer services. It is a low figure because the CPI also includes housing costs, as measured by rent, not price and then gives this an almost 30 per cent weighting in the consumer basket which obviously squeezes the share of other components.

Is housing an investment or a consumer cost? Good question. I think of it more as an investment returning a yield in kind but then, as a homeowner, I would. People who rent their homes tend to think of it as a consumer cost. The world's official statisticians side with them. I won't argue the toss.

But the reason I want to bring it to your attention is that the latest CPI figures say housing costs are rising only 0.38 per cent a year. This is in part the result of those rates rebates which are included in housing costs but also because our government is a soft touch for public housing tenants and is reducing their rents.

Meanwhile, as the second chart shows, the costs of consumer services have rocketed recently with the third-quarter GDP figures indicating an inflation rate of 6.3 per cent.

So ask yourself, dear reader, what kind of consumer are you? Do you live in public rental housing with most of your basic consumer services provided by the government almost free of charge, leaving you to spend most of your monthly income on food and consumer goods?

If so, your only real worry is that swiftly rising food prices in the mainland will push Hong Kong food prices sharply up. Inflation has otherwise not done much to hurt you.

But if you own your home and if your consumption budget is weighted towards services - in short, you are a middle-class sort of person - you are probably already dealing with an inflation rate of nearly 5 per cent and every prospect that it will continue to rise.

We haven't bothered ourselves much about inflation for the past nine years. It is perhaps time that we took it into account again.