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Impact On Casinos – Has Macau Entered Into Disinflation?

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Macau’s inflation

Macau’s annual inflation rate was recorded at 6.05% in December 2014. Macau’s inflation rate was 5.59% for December 2014. Macau’s inflation rate is reported by the Statistics and Census Service, Government of Macau SAR, or DSEC.

The composite CPI (consumer price index) was 103.45 in December. It increased by 5.59% year-over-year, or YoY. However, on a month-over-month basis, Macau’s inflation rate declined from 6.12% in November 2014. Inflation was mainly fuelled by higher rentals for dwellings and rising charges for eating out. This drove up the inflation rate by 4.2%. The composite CPI reflects the impact of price changes on general households.

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The price index of Housing & Fuels, Food & Non-Alcoholic Beverages, and Health witnessed a significant increase due to rising rentals for dwellings. There were also higher charges for eating out and out-patient services. In contrast, the price index of Transport decreased by 1.35%—due to lower gasoline prices.

Liu Li-Gang is a chief Greater China economist at Australia & New Zeland Banking Group Ltd. in Hong Kong. He said, “China has entered into a rapid dis-inflation process, and faces the risk of deflation.”

Key takeaways 

When inflation is decreasing on a month-over-month basis, consumers have greater purchasing power. They have a higher spending capacity.

Greater purchasing power is a positive sign for casino resort companies—including Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL). It’s also positive for ETFs like the VanEck Vectors Gaming ETF (BJK) since these companies account for ~25% of BJK.

Also, low inflation results in lower interest rates. This could help capital-intensive casino companies borrow at cheap rates in order to finance their future operations, if required. The VIP gamblers also benefit since more credit becomes available to them from the junket operators at lower rates.

To learn more about the industry, visit Market Realist’s Casino and Gaming page.

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