LI, Tao @ Hong Kong

Increases in private housing rentals and costs of retail meals cited as main causes

Newly released government figures show that Hong Kong’s overall consumer prices, the main gauge of inflation as measured by the composite consumer price index (CPI), rose 2.5 percent year-on-year in May, slightly larger than the 2.4 percent rise in the previous month.

The faster pace of inflation in May was mainly due to larger increases in private housing rentals and costs for meals bought away from home, the Census and Statistics Department said Tuesday.

Netting out the effects of all one-off relief measures by the government, including the electricity charge subsidy, the year-on-year rate of increase in the composite CPI, i.e., the underlying inflation rate, in May was 1.4 percent, also slightly larger than the 1.3 percent rise in April.

“The underlying consumer price inflation rate remained moderate in May on a year-on-year basis. The strengthening of the Hong Kong dollar alongside the US dollar, as well as the retreat in global food and fuel prices, provided a buffer for containing the overall local price pressure,” said a government spokesman in the report.

He estimated that inflationary pressure from external sources should continue to provide a useful cushion going forward while the debt crisis in Europe is weighing on the global economy.

“The inflation rate on a year-on-year basis may go up somewhat further in the coming months with a relatively lower base of comparison in the same period last year,” the spokesman added.

Irina Fan, a senior economist at Hang Seng Bank forecasts the city’s headline CPI for the whole year to increase 2.2 percent, consistent with the government’s 2.3 percent full-year prediction, though the mounting inflationary pressures on food prices pose uncertainties.

“If natural disasters continue to wreak havoc in southern China, we are likely to lift the forecast, as the city sources considerable volume of food imports from the mainland,” said Fan, adding that the impact will be reflected in June’s index, since the food price inflation is already evident in the city.

Besides food, price inflation in Hong Kong was recorded in almost every other sector in May – except for durable goods – including electricity, gas and water, alcoholic drinks and tobacco, clothing and footwear, transportation and housing.

Fan said overall inflationary pressure on consumer prices should remain modest, but only statistically, as another government relief measure taking effect this summer will continuously cover up from the index the actual increases in house rentals.

“The government’s one-off measure, which subsidizes public housing occupants, has diluted the city’s headline CPI for the whole year at least 1 percent,” said Fan.

The bank expects prices will rise 3.7 percent, or as much as 4 percent next year.

China Daily

(HK Edition 06/23/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-06/23/content_10005650.htm