Animal Farm | Inflation, where are you, where should you be and where are you going!

Albano Martins

When we talk about inflation in Macau, we enter the virtual world of estimating an indicator supposed to measure the increase in the cost of living.

Such an indicator is calculated on a basket of goods as measured during the year immediately preceding the application of the new basket which is constructed to reflect the structure of household expenditure over the next five years. This is currently being done!

In Macau, the last two family budget surveys – now once every five years – came into force in October 2009 and October 2014.

The next basket of goods will be the basis for price indexes from October 2019, and the respective surveys will be conducted between 2018 and 2019.

These surveys are very important because if the information is distorted, the weight of each component in the basket will also be distorted, influencing the final calculation of inflation.

This composition currently comprises 11 components and in the last survey “food and non-alcoholic beverages” was weighted at 29.62 percent of the basket and “housing and fuel” at 27.76 percent. These are the two largest components of the family budget!

All others have a single-digit weight; “transportation” being the next at 9.75 percent!

Curiously, and despite the steady increases in the value of real estate and rentals actually felt by the community, in our basket, rental expenses have been steadily declining for years.

Well, there may be a lag, but there should be no exaggeration!

Since rents are nothing more than the interest applied to a value which is the market value of the property, and since the interest rates that apply must be much higher than the passive rates of term deposits, then, as the value of capital increases, interest, or the price of the rents, should rise, as indeed has been the case.

But not in our statistics! And as its weight is significant, inflation is currently heavily underestimated!

I never understood exactly what “house” our statisticians are referring to in their estimation of housing rental values! Nothing is done without investment and without personnel!

Now, for the first time in many years, in May housing rentals began to register an average change over the last twelve months towards the positive. An enormity, in the vicinity of 0.02 percent!

Residential property owners are now starting not to lose money, though not even the local banks pay so poorly!

Let’s do some calculations. Knowing that inflation for May sat at 1.96 percent, my bet for June will be between 2.11 and 2.13 percentage points. By the 21st of next month, DSEC should report the outcome of its survey. But while we are still less than half way through this challenge, I dare forecast that by the end of the year Macau’s inflation could worsen to the range of 2.72 to 3.27 percent! And, if I should err, believe me, it will be at the upper limit, as the rents seem to be waking up the statistics in Macau!

Do not be surprised, inflation here is well-behaved; it will not exceed three percent nor shall it be a candidate for the crime of qualified disobedience! It shall not wander from the sidewalk!

Curiously, the EIU revised its forecast, made public in Macau in March, from 2.2 to 2.7 percent by the end of this year, stating that Macau’s inflation will be more than double that of the year past.

Great news!

But where was it that I saw this written?