Gauging cost of living

PUBLISHED : Monday, 18 July, 1994, 12:00am
UPDATED : Monday, 18 July, 1994, 12:00am

HONG KONG inflation somehow manages to hang around the 10 per cent mark year on year, give a few percentage points here or there, yet anecdotal evidence suggests a much higher rise in the cost of living is actually taking place.

Although the cost of a McDonald's burger and a can of beer in Hong Kong might still be the cheapest in the region, according to a recent survey, when describing Hong Kong, people, in general, do not say it is a cheap place to live. In fact, prices for many other items in the survey are higher in Hong Kong than countries in the region. When the monthly rental or mortgage fee on a residential property would finance a luxury apartment or a house with grounds in most other developed parts of the world, many people wonder how the Government gets its figures. The Government's claim that its CPI-A index covers 50 per cent of the population is no longer tenable. The median average household salary under the CPI-A index is put at $6,250 a month. This is clearly not tenable.

A better inflation ready reckoner is the Hang Seng Consumer Price Index. This sets the household salary median at $22,500 a month. The Hang Seng measure raises the impact of housing costs from 20.5 per cent in the Government index to 29.5 per cent and reduces food from 41.9 to 25.9 per cent.

This makes the Hang Seng measure of local inflation coming in with higher numbers than those of the Government and more realistic. Ask people whether they spend more on housing or on food and the answer is crystal clear. Bear in mind that property prices have more than doubled in the past three years.

The Government says it is an established fact expenditure levels of households increase gradually over time in response to factors such as changes in income levels and prices. For its part the Government has clearly stated its intention to maintain a regular review of the sample and index calculation methodology every five years. The next review is due between October this year and next September. Let's hope we get a better index out of it that better matches personal perceptions of the rate of inflation.