People in Hong Kong have become less confident about economic conditions as increasing inflation takes its toll, according to the latest quarterly survey by the New Forum, a political association comprised mainly of professionals and business executives.

The Hong Kong Index of Economic Confidence compiled by the organization and based on a quarterly survey painted a downbeat picture of the economy in the first quarter of this year.

The index, based on the methodology used by the University of Michigan's Index of Consumer Sentiment, mainly comprises of four parts: economic confidence, household financial conditions, macroeconomic forecasts, and individual sentiments.

According to the report released on Tuesday, the economic confidence index dropped from last quarter's 88.9 points to 86.5 points, staying below the bullish/bearish threshold of 100. The macro economic forecast index also declined 1.5 points to 91.6 points.

"With gnawing worries about inflation, the prices for all kind of household expenditure keeps growing. It's not easy for the average person to maintain a positive outlook," said Scarlett Pong, a director at New Forum and a member of Sha Tin District Council. The turmoil in the Middle East and the earthquake in Japan on March 11 and its consequences have also added to the negative factors, Pong noted.

Data from the Census and Statistics Department shows that the consumer price index (CPI) in Hong Kong rose 3.7 percent year-on-year in February, after increasing 3.6 percent in January. Food prices, which accounted for one-third of the total CPI, climbed 6.5 percent.

Meanwhile CCB International said in its Weekly Economic Watch that the upward trend of Hong Kong's CPI will continue in the months ahead due to surging inflation on the mainland and US dollar-pegged exchange rate. It predicted the overall CPI of Hong Kong in 2011 to reach 6.3 percent, up from 2.4 percent in 2010.

The household financial condition index also slid from 80 points to 78.9 points, according to the New Forum survey. At the grassroot level, defined by New Forum as those with a monthly household income below HK$20,000 ($2,573), this index receded to 66.5 points, one of the lowest levels in five years. The individual sentiment index fell to 89.7 percent from last quarter's 95.2 percent.

The latest confidence survey was conducted by the New Forum from January 1 to March 31 through telephone polling. Approximately 1,519 Hong Kong citizens aged from 18 to 65 participated.

China Daily

(HK Edition 04/13/2011 page2)