HERE ARE TWO questions for you to put some perspective on the news that the rate of consumer price deflation grew steeper last month, with overall prices down 3.1 per cent from June last year.
(1) When you looked at your electricity bill recently and noticed you had been given a rebate on earlier payments (that is if you are fortunate enough to be a customer of CLP Power rather than Hongkong Electric), did you say: 'How nice. I wish we had this every month'?
(2) When you heard that consumer prices fell by 3.1 per cent last month, did you say: 'How terrible. I hope this ends soon'?
Take your choice. It is one or the other. Personally, I prefer to pay less rather than more for my everyday living necessities but if you like to pay more in order that you can say how wonderful, it is that we have inflation again, well, that is your view and you are entitled to it.
Of course, a simple perspective like this does not encapsulate all of the questions involved. Deflation tends to be associated with moribund economic growth. Everything goes down when the party has reached its end and the hangover of recession sets in. You can then have a hard time sorting out what led to what.
But it does not have to happen that way. In the first quarter of 2000, our consumer prices fell at an annual rate of more than 5 per cent, a steeper decline than at present, but economic growth in that quarter was a 12-year record of 13.6 per cent. Even this year, the first-quarter figures show our economy growing at 4.5 per cent, hardly recession despite a five-year history of deflation.
Hong Kong is a special case and the key to what makes it special is our currency link to the US dollar.
