|China's luxury consumer price index rises.|
Monday, 17th September 2012
Source : Hurun Report
The Luxury Consumer Price Index (Luxury CPI) rose by close to 5% in June, the slowest rise since the economic crisis of 2009, and down by close to 3% from last year. (4.94% & 2.79 respectively)
Hurun Report, the leading authority on wealth in China and publisher of the annual China Rich List, today released the 2012 Hurun Luxury Consumer Price Index (Luxury CPI).
- The Luxury CPI is still 2.74% higher than the national Consumer Price Index
- Prices are rising for the Chinese luxury consumer faster than for the rest of the country. Over the last six years, the Luxury CPI ha outpaced the national CPI by 38%.
- Luxury travel prices increased the most this year, at 11.92% yoy. A first class return ticket from Beijing to Paris for two rose by 11.2% to RMB 250,000.
- Luxury property prices fell only slightly this year, down 2.42% yoy, but have still doubled over a four year period.
- The fastest riser was a Chinese baijiu, with the cost of a bottle of Shuijingfang Classical Collection rising by 58.98% yoy to RMB 1399.
- The cost of private education continue to rise, this year by 7.58%. Tuition for Tsinghua University’s EMBA programme has doubled in the past five years to RMB 560,000.
The Luxury CPI is an alternative index, measuring the change over one year in the prices paid by luxury consumers for a basket of 62 luxury goods and services, separated under nine broader categories including education, jets and yachts, lifestyle, luxury cars, luxury drinks and smokes, luxury properties, skincare and accessories, travel, and watches and jewelry. This is the sixth consecutive year that Hurun Report has released the Luxury CPI.
The Hurun Report index shows that China’s wealthy are having to cope with a 4.94% increase in costs, 2.72% higher than the national Consumer Price Index (CPI), which experienced a 0.6% drop in June. In comparison to last year’s Luxury CPI price increase of 7.73%, the rate of luxury inflation fell 2.79%.
In the Hurun Report basket of goods and services, luxury travel has seen the sharpest increase in prices with an 11.92% spike this year, followed by a 7.84% price increase on high end drinks and smokes. Education fees have increased by 7.58%, watches and jewelry prices by 6.25%, leisure activities by 5.36%, and cosmetics and accessories by 2.77%.
The only sector that grew slower than the national CPI at 2.2% are jets and yachts at 2.14% and the only sector to see a drop in prices is the luxury property category, down 2.42% yoy.
In the past year, currency changes have played a significant role in price increases. Comparing currency exchange rates on June 20 of this year and to twelve months prior, the Euro depreciated 13.5% against the Yuan, the British Pound by 5%, the Swiss Franc by 12.07% and the US Dollar by 2.6%. Of the total 62 goods and services listed, 32 are imported.
The other key factor affecting price changes are changes to the import duties.
Rupert Hoogewerf, Chairman and Chief Researcher of Hurun Report (above right), said, “The slowdown in the economy has knocked the confidence of the Chinese luxury consumer.”
Table above shows the annual changes in Luxury CPI and CPI, aggregated from a base equaling 100 in 2006. Source: Hurun Report
Six years and counting, the Luxury CPI continues to outstrip national CPI
Inflation in luxury goods and services has risen 38.06% faster than the national CPI over the past six years.
The factors influencing this year’s Luxury CPI increase are price increases in luxury travel, drinks and smokes, and education. In 2011, the main factors were price increases in the private jet and yacht industry, accessories and cosmetics, and luxury property. In 2010 and 2008, luxury property prices were the main price-inflating factor whereas in 2009 and 2007, high-end drinks and smokes and education were significant in forcing the Luxury CPI up.
Strong growth still in number of millionaires
The Chinese Millionaire Wealth Report published in August 2012, shows that China’s wealthiest entrepreneurs are relatively unaffected by the global economic downturn. Despite the continuing global financial crisis, 2011 was a record year for China’s rich. The number of US$ billionaires on the Hurun 1000 shot up to 271 individuals, up from 189 the year before and more than double that of 130 in 2009. The cut-off to make the Hurun 1000 shot up to US$310 million, up from US$220 million the year before and it is just as well, as prices for luxury goods continue to rise year on year.
Because of the increasing demand for luxury products, more and more luxury brands are establishing themselves on the Chinese market and resulting in price increases throughout multiple luxury sectors. Take Chanel’s classic bag for example; from 2007 to 2012, the price has doubled with a current retail price of RMB 37,800. Similarly, the Rolls-Royce Phantom Extended Wheel Base has increased by more than RMB 1,000,000 since 2008 while a Piaget Polo watch now costs RMB 28,000, 40% more than the 2008 price of RMB 19,600. In the skincare sector, prices for Lancôme have increased by 33%.
Despite decreases in real estate prices due to increased macroeconomic control by the Chinese government, it has had little effect on luxury property prices. In Shanghai, a Shimao Sheshan villa now sells for RMB 73,000,000, compared to RMB 37,500,000 selling price in 2007. In addition, a 30 year old bottle of Moutai costs RMB 20,580 whereas it was sold for just RMB 8,890 in 2008. Because of the increasing demand for higher education, Tsinghua’s EMBA programme now costs RMB 560,000, up from RMB 290,000 in 2007.
Price hikes in luxury Travel, education and drinks & smokes categories fuel Luxury CPI increase
As a spending sector, luxury travel prices increased the most this year, at 11.92% yoy, a 7.82% increase on last year. Of note is the cost of a one night stay in the Presidential Suite at The Peninsula Hotel Hong Kong, which went for RMB 59,760 in 2011 but now costs RMB 80,360, a price increase of 34.47% yoy. In addition, round trip first class tickets for two from Beijing to Paris will cost RMB 25,000, an 11% increase yoy.
Prices of luxury properties have remained resilient in the current economic crisis, dropping only 2.42% yoy.
Prices for luxury drinks and smokes have slowed slightly to 7.84% compared to last year’s 9.2% price hike. Last year, a 30-year old bottle of Moutai set the biggest price jump in the luxury alcohol sector (60.8%.) This year, a bottle of Shuijingfang Classical Collection is the biggest riser with a price increase of 58.98% and now retails for RMB 1,399. Prices for a bottle of Richard Hennessey cognac have doubled over four years and Louis XIII over five. The price for a case of 1982 Lafite Rothschild red wine dropped 15.80%, considerably effecting the results in this category.
Top education fees continue to rise markedly, with a 7.58% increase overall this year, similar to the 7.4% jump seen last year. Tuition for EMBA programmes increased sharply in 2012, particularly those at the higher end of the scale. Using Tsinghua University’s EMBA programme as an example, tuition costs have increased 24.44% to RMB 560,000, a figure that is almost double the 2007 rate of RMB 290,000. Furthermore, with the appreciation of the RMB, international education is becoming ever cheaper for the Chinese parent who wishes to send their children abroad.
Watches and jewelry prices rose 6.25% yoy, up from last year’s 5.7% price increase. The price of a Patek Philippe Nautilus watch rose by 5%, its first price increase in three years. Meanwhile prices for a Rolex watch have steadily increased from RMB 80,000 in 2007 to RMB 97,000 in 2012. A Cartier Love bracelet saw a 14% price increase over last year, whilst the price for a Piaget Polo watch has increased by 40% over the past five years. The price for a Montblanc fountain pen remains unchanged since 2007. This year, the price of a kilo of gold has increased by 2.59%, but the price of a one carat diamond has decreased by 3.35%.
Luxury leisure activity prices were up 5.36%, a 2.90% increase on last year. Golf membership fees have continued to rise, with a Diamond Membership at the Shenzhen Mission Hills Golf Club currently priced at RMB 1.98 million, an increase of 5.32% yoy. Membership at the Shanghai Sheshan Golf Club, a top membership has increased by 5.56%, costing RMB 1.9 million. Rosewood furniture, particularily popular in China, also continued to rise by 5.15%.
Luxury accessories and skincare products saw a modest 2.77% price hike this year compared to last year’s 16.6% jump. The main reason for last year’s significant spike was brought about by Chanel, which hiked the price of its Classic Flap Bag by 61.6% more than 2010. After relatively stable prices last year, prices for a Hermes 90cm scarf and LA MER cream increased by 5.63% and 7.69% respectively in 2012.
After last year’s steep price increases in the yacht and jet category of 20.11%, these super-luxury products experienced a moderate price rise of 2.14% this year. Since most jets and yachts are imported, values are heavily influenced by fluctuating exchange rates. For example, the price for the Sunseeker 70-foot Manhattan model fell 3.21%, but still costs more than RMB 20,000,000.
China’s wealthy have an ever increasing appetite for private chartered flights, with round trip tickets for 15 people from Los Angeles to Beijing costing RMB 2,870,000. Meanwhile, an 8 person package price from Sanya to Beijing on the Hawker Private Jet 850XP costs RMB 320,000, up 7% yoy.
Luxury car prices rose a mere 0.72%, less than last year’s price rise of 1.54%, making it the most stable category in our basket of goods. Among this, the Rolls-Royce Phantom EWB showed the most significant price increase, a 2.31% jump on last year.
Compiling the Luxury Consumer Price Index
The Hurun Research Institute releases the Luxury CPI to measure the relative changes of luxury consumer goods over a given year. The 2012 Luxury CPI measures the price differences between 20 June 2011 and 20 June 2012, using a basket of 62 popular and timeless luxury products and services which are categorized under nine general categories
2012 Luxury Consumer Price Index 2012: