Rise in property rentals to help push inflation

PUBLISHED : Wednesday, 08 January, 1997, 12:00am
UPDATED : Wednesday, 08 January, 1997, 12:00am

Bank of East Asia warns that Hong Kong's inflation rate will grow this year, with property rentals rising faster.

The bank expects Hong Kong's inflation, measured by CPI (A), to grow between 6.5 per cent and 7 per cent this year compared with a 6 per cent increase in the first 10 months of last year.

Hong Kong's real gross domestic product would grow 5 per cent.

'With the correction in the housing market now over, rental costs are likely to rise faster than last year,' it said.

Average rent increases in the first 10 months of last year amounted to 9.4 per cent, compared with 12.1 per cent in 1995.

In addition, modest price increases in durable goods last year were due to the weakening yen. Miscellaneous goods' prices would bounce back this year, the bank said.

'The bank is not optimistic about Hong Kong's chances of beating inflation,' it said.

It points to a shortage of property supply and a fixed exchange rate between the Hong Kong dollar and the greenback that deprives the government of monetary tools to control price rises.

According to the bank, the latest household expenditure survey showed that consumers had increased their spending on housing from 20.6 per cent to 25.3 per cent of the total in the past five years.

With rising expenditures on housing, and the fact that increases in housing rentals averaged 3 per cent higher than the overall inflation, they would become major factors driving inflation up in the future.