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Macao's Casinos Are in Recovery: Analyzing February's Indicators

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Part 5
Macao's Casinos Are in Recovery: Analyzing February's Indicators PART 5 OF 10

What Do Macao’s Inflation Numbers Indicate?

Inflation rate

Inflation measures the general increase in the price of goods and services in an economy, which leads to a fall in the purchasing power of money. Macao’s annual inflation fell to 0.37% YoY (year-over-year) in February 2017, a substantial drop compared to January’s inflation of 1.8%.

In fact, Macao’s inflation has been on a falling trend since February 2016, when the region’s inflation rate was 3.9%, according to data released by the Macao government’s Statistics and Census Service (or DSEC).

What Do Macao&#8217;s Inflation Numbers Indicate?

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The low inflation rate was due to a fall in the prices of vegetables and excursions. Food and non-alcoholic beverages, which form 29% of the index, rose in price by just 0.14%, while housing and fuels, which form 27% of the index, fell 1.9%.

Transport, which forms 11% of the index, saw a 6.9% price rise, while miscellaneous goods, which form 9% of the index, saw a 1.9% price rise.

Clothing and footwear, which form 6.5% of the index, fell 1.8% in price. Recreation and culture, at 4.8% of the index, fell 8.7% in price. Household appliances, at 3.3%, rose 0.76% in price. Health, at 3% of the index, rose 4% in price, education, at 2.9%, rose 7.4% in price, and communication, at 2.5%, fell 2% in price.

The Composite Consumer Price Index (or CPI) rose 1.1% YoY for the first two months of 2017.

Takeaway

Rising inflation reduces consumers’ purchasing power as their spending capacities fall. Falling inflation, then, is positive for casino companies such as Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL), as people have higher disposable incomes to spend on leisure activities, and borrowing is less expensive for these companies.

Investors can gain exposure to LVS by investing in the iShares US Consumer Services ETF (IYC), which invests 0.69% of its portfolio in the stock.

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