It is no news that statistics lie. Some lie because they are innocently based on wrong assumptions or poor data collection. Others are more damnable lies contrived to deliver the results that those in charge want.
I do not presume to know into which category fall some of the statistics on inflation and deflation which are used to justify key policies in places as different as Hong Kong and the United States. But understatements of inflation or overstatements of deflation certainly come in handy for governments.
Take a look first at Hong Kong gross domestic product data. According to Financial Secretary Henry Tang Ying-yen in his Budget speech, GDP grew 3.3 per cent last year and is forecast to rise another 6 per cent this year. That is an impressive showing, given that the population grew less than 0.5 per cent and the workforce not at all.
However, take a closer look. GDP in current prices actually fell 2 per cent last year. The difference between that and the 3.3 per cent 'growth' consisted of a fall of an astonishing 5.1 per cent in the GDP deflator, which is supposed to reflect price changes across the economy as a whole. That is indeed bizarre.
Last year, consumer prices, as measured by the Composite CPI, fell by just 3 per cent. Even that figure is probably exaggerated (from a practical if not economic statistical viewpoint) by a massive (24 per cent) weighting of private rental housing in the index. Most people live in their own home or in public rental housing. The private rental index is used as a proxy for the whole private sector, which is not an unusual method, but is a poor reflection of the real situation in Hong Kong.
The exaggeration (for practical purposes) of the GDP deflator primarily derives from the huge weighting of imports and exports in the index - even though most of this is low margin re-export business - and, perversely, from a fall in Hong Kong's terms of trade. Export prices fell more than import prices. Prices of retained imports - the food, fuel, consumer durables, and the like, that we use on a daily basis - actually rose 2.9 per cent. The statistical method has thus turned a real income fall into an increase in the GDP deflator, which has puffed up the headline GDP growth. Look at the fine print of the GDP figures and it turns out that real GDP income rose by 1.5 per cent - less than half the headline number.
Nor is this just a one-year aberration. The GDP deflator has now fallen an amazing 23 per cent since 1998 while the CPI has fallen only 15 per cent in the same period. The government is even expecting these lucky GDP figures to continue this year. The forecast provides for a further 3 per cent fall in the deflator which will boost 'growth' from a nominal 3 per cent to a headline 6 per cent. How the forecasters reach this conclusion in the face of CPI numbers increasing in five of the past six months, rising prices in China, and an even weaker US dollar, defeats me. But wishful thinking dies hard.