HK's inflation rate hits 7.9pc

PUBLISHED : Tuesday, 23 August, 2011, 12:00am
UPDATED : Tuesday, 23 August, 2011, 12:00am


Hong Kong inflation rose to 7.9 per cent last month - the sharpest jump in 16 years - confirming what many families already feared as they struggle to keep up with the runaway cost of food and rent.

The year-on-year rise in July's consumer price index was significantly higher than the 5.6 per cent increase recorded in June. The government attributed this to rises in rent and food prices as well as fees for overseas package tours - thanks to the weakening US dollar, to which the city's currency is pegged.

A government spokesman warned that inflation rates were 'likely to remain notable in the near term' due to expected increases in the price of food and housing.

'Yet a more positive development has been the stabilisation of food prices in the international markets over the past few months,' the government said in a news release. 'The government will continue to monitor the movements of global food and commodity prices, and remain vigilant about the local inflation situation, particularly its impact on the lower-income people.'

You would have to go back to November 1995 - when the CPI rose to 8.4 per cent - to find a more drastic increase in inflation.

The government yesterday said the rapid increase was partly due to a lower base of comparison with a year before, especially concerning public housing. The administration waived public housing rentals in July 2010 in a one-off relief measure that also made this year's increase in housing costs appear more severe.

Year-on-year increases among the various CPI components were: alcohol and tobacco 20.1 per cent due to increased tobacco duty, housing 16.4 per cent, food 10.7 per cent, clothing and footwear 7.3 per cent, dining out 5.5 per cent, transport 4.8 per cent, miscellaneous goods 4.1 per cent and miscellaneous services 4 per cent.

However, the price Hongkongers pay for utilities dropped, with electricity, gas and water bills falling 16 per cent, largely as a result of the government's electricity charge subsidy. If you take all the government's relief measure into account, the year-on-year rate of increase would be 5.8 per cent.

Leung Siu-fai, professor of economics at Hong Kong University of Science and Technology, said an inflation rate of 7.9 per cent was rather high considering rock-bottom interest rates mean personal savings were hardly growing.

Leung believed a strong yuan had also helped to drive up the number since Hong Kong relied heavily on the mainland for food and other necessities. One way to ease inflation would be to peg the Hong Kong dollar to other major currencies, he said, including the yuan and the euro, instead of the US dollar alone.

Leung noted that inflation rises often followed an economic boom, and that price increases were 'not necessarily a bad thing'. He added: 'It would be more worrying if Hong Kong faced deflation again.'


The jump in home prices since 2008, making Hong Kong one of the most expensive cities in the world. Experts are now predicting a drop