A butcher serves a shopper at a food market in Hong Kong. Slowdown in the economy and widespread monetary easing globally have blurred the city's inflation outlook. Dale de La Rey / Bloomberg

Some economists see city's CPI rise to 4%, others expect it to fall to 3%

Hong Kong's inflation moderated in August but the slowing economy and widespread monetary easing worldwide have blurred the outlook, leading to mixed forecasts by economists.

The underlying inflation rate of the city, excluding the effects of all the government's one-off relief measures, was 3.7 percent in August, smaller than it was in July (4.2 percent), mainly due to the smaller increases in private housing rentals and the prices of salt-water fish.

The overall CPI rose by 3.7 percent in August from a year earlier, larger than the corresponding increase of 1.6 percent in July 2012, resulting from the difference in timing in respect of the government's payment of public housing rentals.

The underlying inflation receded further in August, thanks to slower year-on-year increases in food prices and private housing rentals, said a government spokesman.

"Given the more difficult economic environment and the more moderate increases in import prices, there should still be some room for inflation to ease further in the near term," the spokesman said.

But the spokesman pointed out that the recent rebound in world food and commodity prices in the midst of abundant global liquidity is a cause for concern.

Private housing rent rose by 5.5 percent from a year ago in August, while food and clothing increased by 5.2 percent and 2.8 percent, respectively.

KC Chan, Secretary for Financial Services and the Treasury, said on Wednesday that as the global economic growth momentum is weakened and the mainland's GDP growth is slowing down; Hong Kong's economic situation next year is expected to be worse than it is this year.

Meanwhile, the Bank of Japan, following the announcements of new bond buying programs by the ECB and US Fed, announced it will make an additional $126 billion in asset purchases to stimulate its slowing domestic economy.

Economists also expect the central bank in China to cut its interest rate or the required reserve ratio again before the end of this year.

The widespread monetary easing worldwide has raised concerns over a price hike in materials and commodities globally.

Donna Kwok, Greater China economist at HSBC, told China Daily that Hong Kong's inflation will likely rise back up towards the 4 percent year-on-year level by year-end, backed by a less favorable base effect in the fourth quarter of this year together, rising global commodity and energy prices as well as a stabilization in economic activity.

Kwok said the impact of QE (in terms of looser global liquidity conditions and higher prices) won't filter through at least for another quarter, so it doesn't change HSBC's expectations for the CPI through to the year end for now.

Paul Tang Sai-on, chief economist at Bank of East Asia, holds a completely different view with Kwok. Tang told China Daily that the inflation in Hong Kong is set to continue to slow down for the rest of this year as a result of softened economic growth.

"I believe the growth of food price as well as (private housing) rent will continue to slow down, as the economic performance (in Hong Kong) is expected to see further deterioration while the food price on the mainland is dropping quickly due to increasing supplies," said Tang.

He also sees that Hong Kong's consumer confidence to be negatively impacted by the city's weak export performance in June and July.

"The overall CPI is likely to drop to below 3 percent by the year end," said Tang.

sophiehe@chinadailyhk.com

(HK Edition 09/21/2012 page2)