HONGKONG'S inflation rate may have dropped recently but the question most economists ask is: for how long? Despite some encouraging signs in March, when price rises fell to a five-year low of 7.8 per cent, the Government still expects inflation to average 9.5 per cent this year. A report by HSBC Asset Management recently claimed Hongkong's inflation would be the the highest in the region at 10.2 per cent. While conceding that inflation was a concern, the Financial Secretary, Mr Hamish Macleod, has chosen to live with it and concentrate on economic growth. Cynics could say: ''Why worry about inflation anyway? In 31/2 years' time, inflation will be someone else's problem.'' Some Government insiders are even suggesting that the policy is to keep the economy moving ''come hell or high water'' until the changeover at midnight on June 30, 1997. Privately, Mr Macleod believes inflation will not get any worse and that it can be contained to within single figures. Many economists, however, do not share his optimism. ''What Mr Macleod has done is trade off inflation for economic growth,'' said Mr Benjamin Chan, chief economist with the Bank of East Asia. ''The Government has obviously decided that the cost of fighting inflation - unemployment and loss in GDP [gross domestic product] growth - is too high. ''But inflation is a fact of economic life here in Hongkong.'' Mr Macleod's budget, despite the giveaways, was an inflationary budget. Already, we have seen price rises in bus fares, petrol and in the supermarkets and restaurants. Mr Macleod made the point that much of his expenditure would be on capital works, which are not necessarily inflationary. True, but Mr Macleod has missed the point. Hongkong is no longer the cheap place it once was to live and work and, in many ways, it has become a victim of its own success. According to Mr Kwok-Chuen Kwok, chief economist for the Standard Chartered Bank, there has been little change in what most economists in Hongkong have been saying about inflation over the past three years. That is: ''It is something we all have to live with.'' Inflation was a result of Hongkong's buoyant economic growth coupled with a limited supply of labour and land resources, he said. With unemployment at under two per cent and an economy which has been growing at about five per cent over the last two years, employers are finding it harder and harder to motivate and retain staff. Increased wage demands and the high cost of property all add to the inflationary spiral. According to Mr David Faulkner, partner with international property consultants Brooke Hillier Parker, residential property prices in Hongkong last year increased by an average of 20 per cent. Retail premises, he said, were still the highest in the world per square foot and Hongkong was still sixth or seventh in the world in the cost of office space. The fact that Hongkong has to import nearly everything it uses - such as oil, cars and food - should add to the inflation equation because everything residents buy is dictated by world market prices. But world inflation has come down and import prices have risen by only one to two per cent a year, so this is no longer a factor. ''Hongkong's inflationary problem is purely domestic,'' Mr Kwok said. ''Because we are a service-oriented economy, costs are determined by wages and rentals, both of which are extremely high in Hongkong. ''The end result is that the cost of the services we use, such as taxis and restaurants, go up right across the board. It is a vicious circle.'' The Government's Consumer Price Index figures for January illustrate this point, with consumer durables increasing by about two per cent, clothing and footware by seven to eight per cent, services 12.5 per cent and housing (rents) 15.5 per cent. Mr Kwok said: ''The problem has been that labour has not kept pace with the sustained economic growth Hongkong has enjoyed over the years. ''In fact, the labour market has been stagnant for a number of years. ''What this has done is create a very competitive labour market where you find workers, even those employed in the most labour-intensive back-room operations in the financial services industry, are commanding high salaries.'' One good example is the hotel industry, where competition for staff ranging from maids to managers is said to be one of the highest in the territory. Obviously, the problem can be solved by importing foreign labour and slowing economic growth. But this appears not to be the politically correct path for Hongkong's administrators.