Pay increases failing to keep up with living costs

PUBLISHED : Friday, 21 March, 2008, 12:00am
UPDATED : Friday, 21 March, 2008, 12:00am

Pay rises are lagging behind inflation as overall consumer prices rose 6.3 per cent last month, the highest in a decade.

Salary increases averaged 4 per cent this year, according to a survey by the Institute of Human Resource Management.

Excluding a one-off rates concession and the effect of the public housing rental waiver a year ago, last month's underlying inflation rate was 5.1 per cent, still higher than the average pay rise. Inflation in January was 4.3 per cent.

A government spokeswoman said the increase in underlying inflation 'was due mainly to greater increases in prices of basic foodstuffs as affected by the snowstorms on the mainland'.

The Census and Statistics Department said more than half of foodstuffs recorded a double-digit increase in prices compared with February a year ago.

Pork prices recorded the highest rise at 56 per cent. Beef prices increased 49 per cent, fresh vegetables 32.7 per cent, canned meat 31.6 per cent and rice 23.4 per cent.

Other contributing factors were larger increases in the cost of meals eaten out, which rose 5.5 per cent, and private housing rents, up 3.5 per cent.

Motor fuel prices rose 18.7 per cent and electricity, gas and water charges were up 7.4 per cent.

But year-on-year declines in prices were recorded in computers and telecommunications equipment, which dropped 12.3 per cent. Prices of video and sound equipment fell 4.9 per cent.

'The build-up of inflationary pressures reflected to a certain extent the strong consumption demand supported by the vibrant economic growth over the past few years,' the government spokesperson said.

'Looking ahead, the global food price inflation, elevated energy prices, gradual appreciation of the renminbi, and the weakness of the Hong Kong dollar alongside the US dollar will continue to pose upside risks to inflation.'

Daniel Chan Po-ming, senior investment strategist at DBS, said lower-income earners suffered the most from high inflation because they were less capable of earning more money while prices of necessities, such as food, kept rising.

'Strong inflation equals wage cuts,' Mr Chan said.

Taking the first two months of this year together, the composite consumer price index increased 4.8 per cent over a year earlier.

Joe Lo, senior economist at Citi's Asia Pacific Economic & Market Analysis, believed the impact of the severe winter weather on the mainland on food prices would last till the end of the first quarter.

Mr Lo said inflation would continue to increase, partly because lower interest rates would encourage domestic consumption.

He expected a full-year inflation rate of 3.7 per cent, taking into account all the government's relief measures. Otherwise, underlying inflation would hit 5 per cent.

Fred Kwan Yum-keung, associate professor of economics and finance at City University, also expected consumer prices to continue to go up this year.

But Dr Kwan believed Hong Kong people could handle the situation because they had a lot of experience in facing inflation.