Inflation

Difference in expenditure weights explained

PUBLISHED : Friday, 29 July, 1994, 12:00am
UPDATED : Friday, 29 July, 1994, 12:00am

I REFER to the editorial headlined, ''Gauging cost of living'' (South China Morning Post, July 18).


It is a fact that the expenditure levels of households increase gradually over time in response to changes in income levels and prices.


However, the expenditure patterns of households (that is, the relative proportion of money households spend on various commodity/service items) should not have undergone drastic changes over the past few years. The expenditure patterns of 50 per cent of total households with relatively low expenditure covered by the 1989/90 Household Expenditure Survey (HES), are expected not to be drastically different from those of households now in the corresponding relative expenditure range. As only the relative expenditure amongst various items is used in the compilation of the Consumer Price Index (CPI), the CPI(A) should continue to reflect price impacts on the 50 per cent of total households with relatively low expenditure despite an increase in the expenditure levels.


The writer commented that the expenditure weights of the Hang Seng CPI were more realistic than those of the CPI(A) because he thought that people spent more on housing than on food.


Distinctive differences exist in the expenditure weights for housing and food between the CPI(A) and the Hang Seng CPI. This is because the Hang Seng CPI covers only households in private housing whereas the CPI(A) covers households in both public and private housing. The expenditure weights on rent and food for the two series of CPI are therefore quite different.


The purpose of compiling different series of CPI in Hong Kong is, in fact, to reflect the impacts of consumer price inflation on households in different expenditure ranges (which actually have different expenditure patterns). The Hang Seng CPI is a better measure of inflation for households with relatively high expenditure. On the other hand, for households with relatively low expenditure, the CPI(A) serves as a better barometer.


I would also like to point out that the next HES, to take place from October this year to next September, is a regular review undertaken every five years to ensure that changes in expenditure patterns, whether substantial or not, are continually reflected in the compilation of the CPI. As expenditure patterns of households only change gradually over time, the incorporation of the updated expenditure patterns after the regular review usually has only minimal impact on the CPI.


We sincerely hope that the above clarifications will help remove the misconceptions reported on the CPI.


S.M. HUNG for Commissioner for Census and Statistics