Betty Cheung Yuk-lan ponders the news every tai-tai has known for months. The latest retail sales have taken a nose-dive, the Government announced late last month, as the SAR officially moves into deflation.
While Mrs Cheung is hard-pressed to define what deflation is except as the opposite of inflation, she knows that sales and 'final reductions' are offered everywhere. Still the shops are empty.
'When the times were good, we used to shop with some abandon. Now we are kind of ashamed to do that,' says the 35-year-old housewife and self-styled tai-tai. 'Now if I need to buy things like curtains, I go with friends to Shenzhen. You can get for $500 what would cost over $2,000 in Hong Kong.' Her husband, Philip, is an information technology manager at an international merchant bank and earns about $60,000 a month. But neither thinks his job is secure. There are talks of a merger with another financial services company, a move that may make his job redundant.
The Cheungs are a microcosm of our economy today: job insecurity, consumption outside the SAR, and inability or unwillingness to spend. These are the ingredients that, multiplied tens of thousand times, cause deflation. When few people spend, prices come down, but when prices are down, consumers do not automatically start spending again.
This is why the Government's chief economist, Tang Kwong-yiu, refused to use the word deflation to describe the state of the economy in November. 'Deflation means there is a price slump in general,' he said. 'I don't think we should use this word to describe the current situation. Classifying it as deflation will only affect consumption and confidence.' All very well, except that in November Hong Kong recorded a Composite Consumer Price Index (CPI) drop of 0.7 per cent for the first time since the index series was introduced between 1975 and 1980.
That decline more than doubled to 1.6 per cent the following month as Gross Domestic Product (GDP) contracted 7.1 per cent in the third quarter. By Government standards, we have moved into a deflationary phase since the economic whirlwind swept across Southeast Asia last year.
Experts, however, cannot agree on exactly when deflation sets in, or whether it exists at all. Economist Lui Ting-ming thinks deflation started in May when consumer prices peaked, and it has been accelerating ever since with prices in constant decline.
