Inflation gathers pace, and it's set to keep rising

PUBLISHED : Friday, 21 May, 2010, 12:00am
UPDATED : Friday, 21 May, 2010, 12:00am

Consumer prices continued to rise last month, and at a faster pace than in March. Economists expect inflationary pressure to continue rising as the economy recovers and interest rates remain low.

The consumer price index rose 2.4 per cent year on year, compared with a 2 per cent rise in March, the Census and Statistics Department said.

The underlying rate of inflation - which excludes the effects of government relief measures such as the subsidy for households' electricity use - was 1.3 per cent, sharply higher than the 0.8 per cent year-on-year increase in March. The year-on-year increase was attributed mainly to higher rents and dearer clothing and footwear.

'Inflationary pressures increased modestly further in April, along with a more entrenched economic recovery and the slightly faster increases in import prices in recent months,' a government spokesman said.

Clothing and footwear prices were 2 per cent higher than a year earlier and food prices 1.8 per cent higher, the department said. Private housing rents were 0.1 per cent higher than a year ago.

The spokesman said that while inflationary pressures might increase further if the economic upswing continued, sustained productivity growth and increased business activity should help to alleviate part of the upward pressures on business costs.

Irina Fan Yuen-yee, senior economist at Hang Seng Bank, said that given the global economy was still unstable, low interest rates and loose monetary policies would remain for some time, meaning cash would be plentiful.

That could mean investors bidding up asset or commodity prices, which would have a knock-on effect on consumers, she said.

Prices - particularly for food - would go up because of economic recovery and natural disasters on the mainland which affected food production.

She said that while the Hong Kong economy had rebounded rapidly, with output rising 8.2 per cent year on year in the first quarter, the public might not be benefiting from the recovery, with prices rising faster than salaries.

The bank expects prices will rise by 2.3 per cent this year and 3.7 per cent next year. The government has forecast full-year inflation of 2.3 per cent in 2010.