Inflation In Hong Kong Accelerates Further

Inflation In Hong Kong Accelerates Further

It
wasn't a good day for the policy makers in Hong Kong as the
inflationary measure continued to gain at faster pace. According to the
figure release by the Census and Statistics Department of Hong Kong the
CPI for July 2008 jumped by 6.3%, mainly due to the enlarged increases
in the price of fresh vegetables and private housing rentals.

Analysed
by sub-index, the year-on-year rates of increase in both the headline
and underlying CPI (A), CPI (B) and CPI (C) were 6.4%, 6.5% and 6.1%
respectively in July 2008, which compared to the corresponding rates of
6.1%, 6.3% and 5.8% in June.

Amongst the various CPI
components, large year-on-year increase in prices was recorded for food
(excluding meals bought away from home) (19.7% in the Composite CPI and
21.5% in the CPI (A) in July 2008. Food items showing large price
increases were rice (66.3% in the Composite CPI as compared with a year
earlier); beef (45.6%); canned meat (39.3%); fresh-water fish (34.1%);
edible oils (32.8%); pork (32.2%); fresh vegetables (28.3%) and other
meat (23.0%).

Apart from food (excluding meals bought away from
home), year-on-year increases in prices were recorded in July 2008 for
electricity, gas and water (7.9% in the Composite CPI and 8.1% in the
CPI(A); housing (6.7% in the Composite CPI and 3.6% in the CPI (A);
meals bought away from home (6.6% in the Composite CPI and 6.8% in the
CPI (A); miscellaneous goods (5.7% in the Composite CPI and 6.4% in
theCPI (A); transport (3.9% in the Composite CPI and 2.2% in the CPI
(A); clothing and footwear (1.4% in the Composite CPI and 4.2% in
theCPI (A) and alcoholic drinks and tobacco (1.3% in the Composite CPI
and 2.0% in theCPI (A).

The mounting inflationary pressure has
changed the economic landscape significantly recently. It's for the
third time in less than 6 months that inflation has crossed 6% mark.
The figure for June 2008 showed CPI soaring at pace of 6.1% from 5.7%
of May 2008.

Consumer price inflation went up further in June
2008, mainly due to the sustained increases in food and energy costs as
well as the strength of the local economy, which exerted greater upward
pressures on housing rents and, to a lesser extent, on prices of
various goods and services

The June value was backed by non-food
inflation, which soared at a pace of 4% in last 2 months compared with
2% recorded in beginning of the year as high global food and energy
price seemed to have filtered through to a wide range of consumer goods
and services.

Consumer price inflation surged to 6.3% in
February 2008 - highest rate since August 1997. That time as well the
rise was driven by the soaring food prices, which rose, on the back of
a damaging snow storm across much of southern China. Larger increases
in cost of meals brought away from home and private housing rentals
also contributed to the rise in consumer prices. The most significant
price increase was recorded for foodstuffs, which reached 19.5% in
February 2008.

The figure was also affected by a number of
one-off factors, including a cut of public housing rentals for February
2007 and a lesser rates concession for January to March 2008.

Hong
Kong's 2007 CPI (Consumer Price Index) was 2% higher than 2006 while
food prices alone increased by 7.1 percent. However, the February 2008
Year-on-year (yoy) food prices jumped as high as 19.5 percent
contributing significantly to the 6.3 percent increase of February CPI
change compared to February 2007. Other CPI components only indicated a
single digit change rate. However Hong Kong's prices for almost all
products are rising in 2008 but the striking spikes are in foodstuffs.

Coming
back to the July figure a Government spokesman said that consumer price
inflation edged up further in July, mainly due to the sustained
increase in food prices and the faster increase in private housing
rents.

Looking ahead we can expect that the recent slide in oil
prices, which have eased off their peaks and holding down, to have a
mitigating impact on the prices front though the quantum of it is
difficult to assess. The average price of crude oil -Nymex Light Sweet
(WTI) is US$ 116.86 per barrel in August 2008 sliding down from US$
133.48 in July 2008. The oil prices may probably not skyrocket, as a
global downturn would eventually dampen oil demand. In addition to
this, Hong Kong's currency is pegged to the U.S. dollar and a rebound
in the U.S. currency in recent weeks is helping reduce inflation on
imported goods.

According to the official press release as well,
The inflation outlook for the rest of the year is rather uncertain.
Although food and energy prices in the international markets have eased
somewhat more recently, they remain elevated compared with a year
earlier. Also, the earlier surges in private housing rents would
increasingly be reflected in the consumer price inflation in the coming
months. Nevertheless, the improvement in labour productivity and the
expected moderation in the rate of economic growth in the period ahead
should provide some alleviation effect. In addition, the relief
measures announced in the 2008-09 Budget and by the Chief Executive in
July would help to lower the headline inflation notably in the latter
part of 2008 .